Cath asks: “Most of my long term investments are in good pensions and in property (my home and a flat that is rented out). I would like to do more investing in funds and make sure I use more of my allowance. What would you suggest?”
Q&A 31 – How To Invest In A Stocks & Shares ISA – Shownotes
Today’s question comes from Moneystepper Savings Challenge top performer – Cath D. Cath is greatly outperforming her original goals for the year, but needs a little extra information about investing limits in ISAs.
Most of my long term investments are in good pension (great for when I am in my 60s!) and in property (my home and a flat that is rented out).
I also have some savings in an easy access Savings ISA (with a goal at the moment to purchase another flat with a Buy to Let mortgage).
The final amount is in a Stocks and Shares ISA, but I did not actively choose the Stocks and Shares ISA. I got it as part of my mortgage back in 1998 (I think it was a TESSA back then??) and have just kept it going after changing my mortgage.
I would like to do more investing in funds and make sure I use more of my allowance. Have listened to your podcasts / Meaningful money podcasts on investing principles, asset classes etc but still feel a bit paralysed.
I’m not using my current allowance. I’m not sure if I should move funds or pay more into my existing fund? Also, can I invest in another fund as part of my ISA allowance or does it all have to be in the same fund?
Thanks for your question Cath. I’m sure you are not alone in your position.
Read Up On Investing
From my experience, people tend to save towards their own home first, and then follow that with investing through pensions.
However, saving in a stocks & shares ISA (outside of retirement accounts) seems to be further down the list of priorities.
First of all, I’ve got some further reading for you Cath.
Check out our “best long-term investing strategy” guide. This gives a lot more information on investing in stocks & shares ISAs and other investing principles.
I would also suggest that you read our guide to ISAs vs Pensions and when (and how much) you would want to invest in each.
In summary, Cath, you are free to invest any amount each year up to the ISA limits (currently £15,240), and this can be invested in index funds, mutual funds, ETFs, individual shares or anything else you wish.
Once you have read our long-term investing guide, you should have a good idea what you want to invest in within your ISA.
Questions To Ask Yourself
But, before you start, your first step should be to understand where you are today. This will include answering the following questions:
- What are you invested in? – exactly what you are currently invested in within your existing ISA? You absolutely must understand what you are investing in.
- Who is it with? – who is the ISA with? And, who is the underlying investments within the ISA with?
- How much do you have invested? – we speak in detail in the guide about diversification and understanding how well diversified you are across asset classes. Effectively, your investments in your pension and your S&S ISAs will form part of the same asset (stocks, also known as shares or equities). However, with your investments in property and your pension, you’ll want to know how much as a percentage of your overall investments you have in stocks & shares before buying more.
- What are your returns? – What have your annual returns been since you started investing (including fees)? This is a key figure. It will essentially tell you whether your current investment in your ISA is a good one. If you have returned less than 7-8% per year on average over that time, it may be time to look elsewhere. This is obviously comparative so you’ll also want to answer…
- How do they compare? What is the performance of the underlying market (FTSE All-Share perhaps) since then? If your investments have under-performed this figure it might be time to look elsewhere
- What about fees? What fees are you paying on your S&S ISA account and/or the investments within the account? When investing in an S&S ISA, there is often the chance that you will be charged fees multiple times. Firstly, you may be charged by your ISA provider to hold the ISA account, you might be charged trading fees everytime you buy or sell within the account and then you have the management fees of whatever funds you are invested in. Also, at the same time, you’ll want to check this for your pension investments.
Once you have the answers with these questions, you’ll have a much better understanding of whether you are happy with you current investment. If you are, you may want to leave it there and invest more into those same accounts.
However, if you realise that your investment isn’t in line with your goals, or has under-performed the market, you may wish to move this investment to another ISA account (doing an automated transfer) and/or invest in different assets or equity classes.
A 3-Step Summary
In summary, you’ll want to work out three things:
- What is your current split in your investments between property, equities, small business, cash & other investments? Given your current diversification, where should your next chunk of investment money go?
- Are your current investments in your stocks & shares ISA performing as well as the underlying market after fees are taken into consideration? If they are not, you’ll want to take action and move these.
- Based on your first two answers, you’ll need to form an action plan as to where you want to invest your new funds and with what ISA account provider.
In answering this question, I also wanted to explore your situation where you are saving up cash for another house purchase, but we are already getting on. As such, I’ll come back on Wednesday with an answer to the second part of this question.
The Moneystepper Savings Challenge
Just a reminder to everyone that the Moneystepper Savings Challenge will remain free for new participants up to the end of October. That means, at the time of release, you only have five more days (until October 31st) to take advantage of this spookily good deal!
The Savings Challenge is changing people’s lives. Get involved now and reach your financial dreams.
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