Friday 5th April is ISA deadline day. That means that Friday is the last day to take advantage of your annual ISA allowance – the amount you’re allowed to contribute into an ISA each year. So, what should investors be doing right now with the deadline just days away?
Open an ISA
If you don’t yet have an ISA, now could be a great time to open one. Why? Because they can help you save much more effectively.
The main advantage of ISAs is that they’re tax-free investment vehicles meaning that all income and capital gains generated within them is not subject to tax. That’s a huge benefit if you’re looking to build up your wealth as it means more money for you and less for the taxman. But with so many different types of ISAs available, which is the best account to open?
Personally, I’d go for a Stocks and Shares ISA and/or a Lifetime ISA (you can find out more about the benefits and drawbacks of each here). The reason I say this is that both of these allow you to hold a wide variety of growth investments including stocks, funds, and ETFs. That means you have the opportunity to grow your money at a high rate.
For example, through either of these, you could invest in the popular Fundsmith Equity fund which, over the last five years, has returned around 160%. Alternatively, you could build your own portfolio of stocks and take advantage of some of the huge dividend yields available in the FTSE 100 right now. Either way, these ISAs could help you build up your wealth quickly.
In contrast, a Cash ISA only allows you to hold your money in cash savings which means you’re unlikely to earn much more than 1% per year on your money. At that kind of interest rate, your money is essentially losing purchasing power over time because inflation is around 2% to 3% per year. As such, I don’t see much appeal in the Cash ISA.
Take advantage of allowances
The next step is to take advantage of your annual ISA allowance.
Now, I think it’s fair to say that with annual ISA allowances being increased dramatically in recent years (the allowance is now £20,000 per year for the Stocks and Shares ISA and the Cash ISA), there’s less urgency for some to contribute into ISAs before the deadline now than there was in the past when annual allowances were much lower.
That said, one exception is the Lifetime ISA. Its annual allowance is just £4,000, and given that it comes with a 25p bonus for every pound invested, I think it’s important to contribute as much as possible before the deadline and try to max out your allowance, in order to pick up as much free money from the government as you can. Once this opportunity has gone, it’s gone.
Check your investments
Finally, with ISAs likely to receive plenty of attention this week, now could also be a great time to check your investments. Are you happy with the state of your portfolio? If the answer is no, it could be a smart idea to make some changes and get your portfolio into shape.
The good news is that you’ll find plenty of information regarding attractive investment opportunities right here at The Motley Fool.
