It’s a good idea to constantly review and, if necessary, refresh one’s investing strategy. The trouble for many is that that finding new ways to use money in an Individual Savings Account (ISA) takes time and effort.
However, it needn’t be a laborious task. And if done effectively, the rewards can be considerable.
With the New Year underway, many UK savers and investors are seeking new ways to boost their ISAs. Here are two I think are worth serious consideration right now.
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1. Focus on shares
I’m one of many people who own both a Cash ISA and a Stocks and Shares ISA. But the amount of money invested in the latter dwarfs what I have in the former.
Cash accounts are a great way to manage risk. But the better returns on offer mean prioritising a Stocks and Shares ISA may be a good idea for those with a higher risk threshold.
Recent interest rate cuts mean the best-paying Cash ISA rate for easy access is now below 5%. By comparison, the average long-term returns on the FTSE 100 and S&P 500 are around 7% and 11% respectively.
The returns from Cash ISAs could continue falling, too, as the Bank of England adjusts its monetary policy in response to falling inflation.
Let me show you the difference this could make on someone’s long-term wealth. A monthly £500 investment in a 4%-yielding Cash ISA would turn into £257,065 after 25 years.
Now let’s split that investment 80/20, with £100 put in that Cash ISA and £400 in a Stocks and Shares ISA. If that person could achieve a 9% average annual return on their share investments, they would end up with £499,862 across both ISAs, excluding broker fees.
Past performance is no guarantee of future returns. But I’m optimistic that share markets can continue their impressive long-term ascent.
2. Broaden your horizons
Major UK and US shares dominate the portfolios of Stocks and Shares ISA investors. The likes of Lloyds, Nvidia, Rolls-Royce, and Tesla all feature heavily.
Those seeking to supercharge their investment returns, however, may want to look further afield to emerging markets for other stocks and funds to buy.
The Franklin FTSE India ETF (LSE:FLXI) is one fund I’m considering for my own portfolio. This exchange-traded fund (ETF) has holdings in 244 large- and mid-cap Indian stocks, a quality that helps investors to spread risk.
Since early 2020, the fund’s delivered an average annual return of 11.4%. That’s below the 14% that an S&P 500-focused ETF would have roughly provided in that time.
Yet I believe returns here could be far higher looking ahead, driven by India’s rapid economic growth, heavy overseas investment, and ongoing government reforms.
The IMF thinks the Asian’s second-largest economy will grow 6.5% this year alone. That’s significantly higher than the 2.2% and 1.5% predicted for the US and UK.
A broad selection of stocks — from HDFC Bank and Hindustan Unilever to Tata Motors — gives investors in this Franklin Templeton fund multiple ways to capitalise on the economic boom.
While currency volatility could impact future returns, I still think emerging market ETFs like this one have the potential to deliver blowout profits for investors.
