09 Jul So does the N really make it NISA? Here’s our Beginner’s Guide to investing…
The new ISA rather cutely named NISA (New ISA!) officially launched this month – but what advantages do the changes bring for savers?
Everyone knows that ISA’s have always been a great way to save tax-free, and through the stocks and shares option they often represent a first step into investing for many. The changes which came into affect from 1st July, continue to make the NISA a very attractive option for tax-free investing. So what exactly are the main changes? Well…
• You can now invest up to £15K tax free every financial year, an increase of just over £3K!
• There is no longer any stipulation on the mix of cash and/or stocks and shares – it’s completely up to you!
• You can now move stocks and shares back into a cash ISA with no penalty from HMRC!
Of course, the bigger allowance has grabbed all the headlines, but the greater freedom in how you manage your NISA is big news too.
Cash or Stocks & Shares?
Recent HMRC stats show that ISA’s have traditionally been heavily weighted towards cash; with £40 billion going into cash compared to £16 billion to Stocks & Shares. This might be attributed to nervousness on the part of investors – after all, cash seems risk free. However, in the current climate, nothing is risk free. There’s a real danger that many could see the buying power of savings eroded by inflation continuing to grow faster than interest rates, despite interest being added tax free.
Last tax year the FTSE 100 rose by 6.4%. Investing at the start of the tax year in a medium risk stocks and shares ISA would have seen the maximum ISA contribution benefit from tax free growth of £760, had it matched that performance. In addition no tax would be paid on the interest or dividends received. A typical 3% dividend payment would have added another £346 to your fund – that’s a total return of around £1,000.
If a couple invested their full NISA allowance for the next 20 years, they could end up with an investment fund of £1m! We would highly recommend using your annual NISA allowance as part of your investment strategy – but it’s important to get financial advice in making sure you choose the right option for your circumstances – and also to see what options are available once you’ve used up your NISA allowance.
If you’re new to investing, check out our 5 point beginner’s guide below:
Beginner’s Guide to investing:
1. As always, the greater return you want, the more risk you’ll usually have to accept
2. Be clear about your goals; are you investing to fund your retirement, to fund a property purchase, or for school fees? These considerations will influence how much risk you’re prepared to take.
3. Be clear about your time frame; how long do you want to invest for? Can you lock away your investment or will you need access to funds?
4. Review your portfolio annually. A fund might no longer be performing, or you might not be willing to take as many risks as you did before.
5. Get advice – you need to be fully informed to make the right decisions for you.
Please remember that any investments related to stocks and shares can fall as well as rise and the return from them may go down as well as up, it is not guaranteed, and you may not get back the amount you invested.