The end of the tax year is just under a month away, which means you have around four weeks to use your £20,000 ISA allowance for the year.
If you want to achieve the best returns on your hard-earned money, there’s no better option than to invest in a stocks and shares ISA. Over the long term, returns from equities far exceed the returns available on cash, although you have to be prepared to cope with some volatility, as stocks never go straight up. Still, over the space of a decade, equity returns more than make up for the extra volatility.
But if you are new to investing, trying to decide where to invest your money can be a confusing process. There are hundreds of investment funds out there, all of which have different managers, strategies and fee structures. Some of these are much more appropriate for beginners than others.
Cutting through the complexity
To try and cut through the complexity, I believe that the best fund for beginners and experienced investors alike is the LifeStrategy 60% Equity Fund. This gives you a well-diversified portfolio at the click of a button, and it only charges 0.22% per annum in fees, making it one of the lowest cost offerings around.
The fund is split 40% in bonds and 60% in equities, giving you a well-diversified portfolio that should continue to produce returns in all market environments. What’s more, exposure to these asset classes is via other low-cost offerings, with the result being that investors can build a globally diversified equity portfolio and bond portfolio instantly. And there’s no risk of picking the wrong stocks as the underlying instruments invest in equity indexes. Since inception, it has produced a return of 8.8% per annum for investors.
The power of compound interest
A steady return of 8.8% per annum is enough to turn £1,000 into £2,300 over 10 years. If you use your full ISA allowance of £20,000, at a growth rate of 8.8% per annum your pot will grow in size to £47,800 over the space of a decade (excluding any other contributions).
The other benefit of investing with Vanguard’s offering is it requires no effort on your part. To achieve the best returns in investing you have to have a long term-time horizon, but for most investors, doing the level of research required to hold a company for 10 years or more is too demanding. The 60% Equity Fund solves this problem as it has an interest in almost every large company in the world. As long as the world continues to grow, so will your portfolio.
Another advantage is flexibility as you’re able to build your portfolio around the fund, using it as a stable backbone of global exposure. You can add other high-quality companies to the mix such as AstraZeneca, which will hopefully allow you to improve your returns, although if you make a mistake, having the 60% Equity Fund as a failsafe means you won’t be wiped out.
The bottom line
So overall, the LifeStrategy 60% Equity Fund provides you with an instant, globally diversified portfolio at the click of a button, making it the perfect ISA buy for investors who don’t know where to start. And even if you are an experienced investor, including the offering in your portfolio could act as an insurance policy against any silly mistakes.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.