Investment Ideas for Your NISA

ASK THE EXPERT: From July 1 investors have a £15,000 tax-efficient savings allowance. What sort of funds could you be considering for your NISA portfolio?

Emma Wall 30 June, 2014 | 11:10AM
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Emma Wall: Hello, and welcome to the Morningstar Series, Ask the Expert. I'm Emma Wall, and here with me today is Darius McDermott of Chelsea Financial Services. Hello, Darius.

Darius McDermott: Hello, Emma.

Wall: So July 1, £15,000 per person to hide from the taxman in this new ISAs. What should people be considering before using up that extra allocation?

McDermott: Well, the first thing is, there is no reason not to use it. It's not like there is any extra charges or anything that would prohibit them from actually buying an ISA as long as they have money to invest or save either in cash or investments. ISA wrapper really is now very powerful indeed.

Wall: And the sorts of things that we should be looking to put in this ISA wrapper, of course it can be cash or it can be investments?

McDermott: You have greater flexibility. The new rules are allowing greater flexibility to switch between cash and investments. As you know, my focus is mostly on investments. So it does depend on two things; how long you want to invest for and what is your attitude to risk.

I always think income-based products, whether global or UK are a nice place for people to start. They tend to invest in more mature companies that are able to pay dividends. And you can reinvest those dividends to actually get growth. So it's not just because they are income-type funds that you should actually stay away from if you want growth. I think that’s a nice place for people to start.

If you are more experienced investor and you maybe have some funds or cash already in ISAs, then it really is a matter of broadening your portfolio and trying to get good geographical and asset diversification. So if you have got a lot of equity products, it might be time to have some property, some commercial property. If you have got a lot of fixed interest, it might actually be time to maybe move up the risk scale a little bit and get some diversification in equity. So there is no set rule. But it is about trying to meet what's right for your individual needs.

Wall: And then, as you say, there is no set rule, but the beauty of compound interest is that over time it really does make a significant difference. So people really should be looking at this investment in ISA opportunity as a long-term horizon in general.

McDermott: Very much. I mean ISAs now can sit alongside a pension as a long-term investment vehicle. They do have greater flexibility because you can actually take some money out if you need to, but if you think of ISAs as a long-term investment. Cash – when cash yields at decent rate is also very powerful. But currently cash rates are very, very paltry and you really do have to spend quite a lot of time shopping around and moving, probably more than a lot of people are prepared to do.

So I would favour at the moment still an investment-driven product in the – where we are in the current cycle. As people who are prepared to take a bit more risk could consider bonds or fixed interest type of vehicles and then people who are prepared to take sort of a bit more risker gain could consider equity-based products. But equity-based products come again with quite different risk levels. You can invest in Japan or emerging markets, which is the most risky, but potentially very rewarding or sort of core U.K. or global income type stocks which are much more mature and less volatile. So there is a lot of choice.

Wall: So I suppose the most important thing there is to make sure that people take the time to self-educate before making these decisions.

McDermott: Well, there is a huge amount of information available now. There is a lot of research done on funds. So there is no excuse for just buying last year's winner, which was a big trait of sort of people – investors in the '90s and '00s. So try to build a balanced portfolio.

If you're a first time investor I would suggest a global fund, so you get a global exposure. You can always add to it afterwards when you make further investments, but something like M&G Global Dividend is a core large cap dividend fund invested by half in America and the balance then really in U.K. and Europe. It will invest in other areas as well, but those – it's a core dividend type investing.

Wall: Darius, thank you very much.

McDermott: My pleasure.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
M&G Global Dividend GBP A Acc417.48 GBP0.70Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar