ISA season is right around the corner, so it’s important to be prepared to make the most of your opportunities. There are lots of things you can do to make sure you wrap up this tax year well and put yourself on a good footing for the coming year.
Michael Martin, private client manager at 7IM, has shared his seven top tips to make the most of this particular time of year. Let’s take a look at his suggestions.
1. Time in the market is your friend – but be prepared for some fall outs
ISA season means another chance to lock in some tax-efficient investments. If you’re using your stocks and shares ISA properly, you have the opportunity to build up an amazing portfolio.
It’s important to remember that markets don’t just go up in a straight line. It will definitely be a bumpy journey on your way to financial freedom. However, being invested in the market for the long run means you can glide along using the power of compound interest to your advantage.
2. Keep calm and stay invested through turbulent times
Following on from the first tip, keeping steady with your investing strategy can mean you pick up investments at a bargain during times of market uncertainty.
When the stock market drops, you might be bombarded with information. Just remember that over the long term, these events will barely be a blip on your radar. Don’t use up your energy worrying. Staying the course with a well-diversified portfolio means you have a great chance of watching your investments rebound.
3. Ignore what you’ve learned about reducing risk as you get older
Reducing investment risk as you approach retirement has been a universal approach for most. But it’s important to consider that the retirement landscape is changing.
You’re likely to have a longer retirement and less likely to buy something like an annuity. Taking your foot off the gas with your investments could hamper your long and happy retirement.
Shifting everything into lower-risk investments like cash and bonds could prevent growth. This might mean you’re in a worse position to deal with things like inflation or living much longer than you expect!
4. Avoid home bias – but don’t underestimate the UK
Sometimes it can be hard to avoid filling our portfolio with UK-based investments. This is because they are companies we tend to interact with and it is the market we know most about.
Investing in what you know can be helpful, but it can sometimes lead to too much concentration. With ISA season upon us shortly, it’s worthing checking you are not too reliant on the UK.
Some exposure is good, but it might be worth having a quick run through your investments to see if you can arrange things to give you more global balance.
5. Look under the bonnet
ISA season is a great opportunity to do a quick MOT on your portfolio and investments.
Different companies have different ideas of what they think is a cautious investment. Things might have a ‘cautious’ label, but still contain a lot of high volatility assets like equities.
If you’re a risk-averse person, make sure any funds or investments reflect that. Perhaps this could mean choosing funds with a higher percentage bond component.
6. If you’ve got all you need, think about helping your children and grandchildren with their ISAs
Sometimes, we make sure our affairs are all in order and forget we might be able to help others.
Many people have additional ISA allowances that they don’t really know about or use. Making use of gifting allowances and passing on money using things like Junior ISAs can help reduce a potential inheritance tax (IHT) bill in future.
7. Diversify your tax risk
When it comes down to it, ISA season is all about tax. The tax situation can be quite fluid, depending on politics and the greater global landscape.
Therefore it’s important to try and diversify any potential tax risk. This will give you a good chance of protecting yourself against changes. No one has a crystal ball and it’s impossible to be completely ‘future proof’.
That said, doing things like making the most of your current allowances will ensure you’re as prepared as you can be.