Tips for managing your ISA portfolio (a Morningstar video interview)

Posted by Stephen Sutherland on Wed, Mar 13, 2013 @ 03:40 PM

Tips for managing your ISA portfolioRecently I had the pleasure of being interviewed by Holly Cook, Managing Editor of Morningstar. In particular, Holly and I discussed ISA investment and over our next 3 posts we'll look at the points we covered in more detail.

In this first interview, we looked at the key role ISAs can play in building up a tax-free portfolio, and also how we use the Morningstar site to manage and monitor the funds where we invest.

If you would like to learn more about how we use Morningstar, please just download our free report on the subject, Finding a Good Growth Fund.

Here's a full transcript of the interview:

Holly Cook: It's that time of year again. As ISA season is upon us, I'm joined today by Stephen Sutherland, the Chief Investment Strategist of ISACO to talk about how you can use these wrappers to invest and strategies to do so. 

Stephen, thanks very much for joining me. 

Stephen Sutherland: Thank you for having me. 

Cook: So let's start at the very beginning. Why is it that you like investing in an ISA wrapper rather than other wrappers that are available? 

Sutherland: Our two favourites are ISAs and SIPPs. The reason why we like ISAs is because they offer this compelling combination of easy access and long-term tax advantages. The big benefit of investing in ISAs is that all the gains that you make are completely tax-free. And The Financial Times in October 2008, they reported that there are ISA investors with accounts in the tens of millions. So that just shows you the potential of investing in ISAs. 

The other thing that we like about them, Holly, is that you can take an ISA each and every year, and the annual limit for a Stocks and Shares ISA is quite significant. It's currently £11,280 and it's going to be increasing from the 6th April this year to £11,520. 

Cook: So these ISA wrappers can actually, if you play your cards right, help you to become a millionaire with much better chances than the lottery could. 

Sutherland: Yeah. 

Cook: So from a practical point of view, when you are actually running an ISA portfolio, what sort of strategy do you use, whether you are looking for income or for growth? 

Sutherland: We like to focus on growth first and income withdrawals later. We found though that the key with income withdrawals is to draw down a smaller percentage than what your account is actually growing at. 

Now with growth, we aim high. We aim for 12% to 15% returns per year. Why do we aim so high? Well first of all, you've got inflation, that's historically about 3% per year. You've also got the cost of investing, that's another 1% to 2% a year. So put those two together, about 4% or 5% just to break even. And people are living longer. So that means that in our opinion, if you invest too conservatively and you fail to get adequate growth, then you run the risk of running out of capital during your retirement. 

Cook: Absolutely and something everybody wants to avoid. So how do you actually go about creating the right ISA portfolio and then monitoring it and managing it on an ongoing basis?

Sutherland: We start from a technical point of view, and the first question we want to ask is, are we in a bull market? If we are, then we will then look to invest and the way we do that is we go to the Morningstar site. We look for a fund, and if we find one that passes our criteria and it excites us, then we will buy it. We can then easily manage and monitor that fund or the funds we buy by setting up a portfolio on the Morningstar site. That's easy to do. And also you can set up daily alerts that can get sent directly to your inbox, and that's a great way of keeping an eye on your portfolio each and every day. 

Cook: Well it’s great to meet such a vocal fan of the Morningstar website! So, for individual investors who are looking to invest within an ISA wrapper, have you got any sort of top tips that you could share? 

Sutherland: Yes. The first one would be to always measure and monitor your annual performance. Always do that. IFAs and fund supermarkets and brokers, in general, won't tell you to do this but it's so important that you do. Now we like to measure against a popular index such as the FTSE 100. So, if you find that for any reason you are underperforming the FTSE 100, it might be time to take a closer look at your investment strategy. 

Keep a close eye on fees. Try to invest in fund managers with great track records, and for you and your partner to invest the maximum ISA allowance each and every year. Think long-term and stay the course. 

Cook: Thanks very much, Stephen. Those are some very practical tips for us. Thanks for joining me. 

Sutherland: You are very welcome. 

Cook: For Morningstar, I'm Holly Cook. Thanks for watching.

I hope you've found this interview useful. As always, if you have any questions or thoughts on the points covered, please leave a comment below or connect with us @ISACO_ on Twitter.


ISACO is a specialist in ISA and SIPP Investment and the pioneer of ‘Shadow Investment’, a simple way to grow your ISA and SIPP. Together with our clients, we have £57 million actively invested in ISAs and pensions*. 

Our personal investment service allows you to look over our shoulder and buy into exactly the same funds as we are buying. These are investment funds that we personally own and so you can be assured that they are good quality. We are proud to say that by ‘shadowing’ us, our clients have made an annual return of 12.5% per year over the last four years** versus the FTSE 100’s 7.4%. 

We currently have close to 400 carefully selected clients. Most of them have over £100,000 actively invested and the majority are DIY investors such as business owners, self-employed professionals and corporate executives. We also have clients from the financial services sector such as IFAs, wealth managers and fund managers. ISACO Ltd is authorised and regulated by the Financial Services Authority (FSA). Our firm reference number is 525147.

* 15th November 2012: Internal estimation of total ISA and pension assets owned by ISACO Investment Team and ISACO premium clients. 
** (31st December 2008 - 31st December 2012). 
ISACO investment performance verified by Independent Executives Ltd.

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Topics: ISA investing tips, ISA growth