Times are uncertain, but don’t let that be a reason to forget to top up your ISA.
Don’t ignore your stocks and shares ISA during these difficult times
Right now might not be the optimal time for investing but that does not mean you shouldn’t top up your ISA before the financial year is up.
If you have a stocks and shares ISA, or are thinking of setting one up, then in current circumstances I wouldn’t blame you for being hesitant. My crystal ball is not working very well at the moment, no one knows how things are going to pan out. We are in uncertain times, to put it mildly.
The stocks and shares self select ISA
Just to remind you, if you invest via an ISA any dividends or capital gains are tax free. There are many types of ISAs, for the benefit of this article I am looking at a self-select stocks and shares ISA, which means, within certain rules, you choose what to invest in.
And frankly, right now is difficult. Will shares fall further? Personally, I think they will.
On the other hand, stocks are so cheap, some company shares are looking extremely tempting.
Some companies may actually do well in this crisis — companies that provide technology to support remote working, for example.
But that is not the key point I want to make today.
Don’t lose this year’s annual limit
No, my argument is far simpler. With an ISA there is a £20,000 annual limit. Once this financial year has been and gone, if you haven’t used your allowance, then it will be too late.
If you are feeling uneasy about investing in stocks, then you could leave the money in cash, awaiting that buying opportunity.
So, if you have a lump sum which is greater than the ISA annual limit, maybe you have cashed in a pension, or sold your business, and want to create an ISA portfolio, then don’t miss this year’s allowance. The same applies if you have allocated money to invest from your income.
With stocks and shares self select ISAs there are other options too. You can invest in government and corporate bonds and funds.
As a general rule, the price of bonds and equities move in opposite directions. Right now government bonds are super expensive (price is a function of yield, but in reverse, the lower the yield the higher the price.)
So actually, in times of such uncertainty, you can in any case construct a portfolio designed to limit your risk by investing in different asset types and which often see their respective prices move in opposite directions. So you could invest some money in equities, some in government bonds, some in corporate bonds and leave some in cash awaiting for what you perceive as a buying opportunity.
These are difficult times, and for most of us, making money is not our main priority. Just remember, however, in such times, some pretty strong investing opportunities are likely to emerge.
If you keep some cash to hand in your ISA during these times, you will be well placed to grab such opportunities, when they come.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees