In this post we'll look at five key steps that sit at the heart of a successful ISA investment strategy. Each of these steps on its own may help you achieve better growth, however I recommend that you aim to adopt as many of them as possible.
If you want more information on boosting your ISA returns, don't forget to download our free ISA Guide.
1. Invest at the right time
If you're an active investor, then an important part of your ISA investment strategy will be to get in sync with the stock market. This is because institutional investors account for approximately 75% of the market’s movement, so it’s important to follow their lead. If you don't, it can feel like trying to swim upstream against a strong current. Aim to invest when the stock market is in a confirmed uptrend and to exit the market into an ISA Cash Park when a downtrend has been triggered.
2. Fight for every percentage point
It’s possible to boost your ISA growth by using a fund supermarket as part of your ISA investment strategy, such as Fidelity’s FundsNetwork™. This will help keep commission and switching costs low. If you don’t buy using a fund supermarket you can pay as much as 5% in commission fees, which means that your fund would have to go up 5% just to get back even.
3. Invest the maximum allowance every year
Aim to make investing the full annual ISA allowance each and every year a central part of your ISA investment strategy. Your goal should be to keep adding to your account for the full duration of your plan, irrespective of what the market is doing and invest as soon as a new tax year begins. In an ideal world, you would put in the maximum annual amount for you and your partner each year, which for 2012/13 is £11,280.
4. Make your ISA investment strategy long-term
When investing in adventurous funds using a Stocks & Shares ISA tax-wrapper, it’s important to think long-term such as ten, twenty or even fifty years into the future. Many people unfortunately make the fatal mistake of cashing in their chips early, a decision that could completely undermine their ISA investment strategy and cause them deep regret.
It’s important to be patient. Smart investors make it a rule to never use money in their ISA accounts for anything other than investing in investment funds. They are able to say no to unplanned purchase temptations such as weddings, holidays, house deposits, cars, university education and school fees. Astute investors don’t touch their ISA account money in emergency situations either.
Instead they set up a spare account to deal with emergencies. They also have other accounts to pay for unplanned purchases such as the ones mentioned above. To win, intelligent investors make sure their ISA account becomes untouchable. They patiently sit and wait until the time their portfolio has hit their long-term financial goals and when it does, that's the time they start a withdrawal program to help pay for their lifestyle.
5. A sustainable withdrawal program
When reaching a long-term target, which could be anything from £500,000 to £15 million or even more, a smart investor would set up an automatic withdrawal plan to pay for their lifestyle. The key rule is to take out less as a percentage than the rate your account is then growing at. For example, an investor who had been making 8% per year over the long term could withdraw maybe 3% or 4%, ensuring that their main lump sum would continue to grow.
If you're looking to develop an ISA investment strategy for the longer term, then I hope you've found this post helpful. As always, if you have any questions or thoughts on the points I've covered, please leave a comment below or connect with us @ISACO_ on Twitter.
Please note past performance should not be used as a guide to future performance, which is not guaranteed. Investing in Funds should be considered a long-term investment. The value of the investment can go down as well as up and there is no guarantee that you will get back the amount you originally invested.
About ISACO
ISACO was established in 2001 by brothers Stephen and Paul Sutherland and is the first financially regulated firm to offer adventurous ISA and SIPP investors a unique personal investment service that shares on a daily basis our star-performing investor’s thoughts, personal insights and investment decisions.
Clients enjoy being informed throughout the year what ‘best of breed’ funds our premier investor currently owns, when he’s buying and when he’s moving into the safe harbour of cash – helping clients enjoy more control, manage their portfolio more effectively and benefit from the potential of outstanding long-term returns.
For more information about ISACO and our Investment Guidance Service, please read our free brochure.
