Recently my brother Stephen, our Chief Investment Strategist, was interviewed by Emma Wall of Morningstar. With investors having just days to make the most of their £11,520 2013/14 tax year ISA allowance, Stephen offered some tips on how to make the most of your tax-free sum.
To see the interview, just click on the image. It's also available in full below. For more on ISAs, including the new NISA rules, why not download our free, fully updated ISA Guide.
Morningstar interview on ISAs
Emma Wall: Hello, and welcome to the Morningstar series, Ask the Expert. I'm Emma Wall and here with me today is author and investment strategist, Stephen Sutherland.
Stephen Sutherland: Hi, Emma.
Wall: So, we here today to talk about last-minute ISA tips. Investors have only got two weeks to go before the end of the tax year, and they have £11,520 to shield from the tax man before then if they haven't done so already. What's your first tip to these last-minute ISA investors?
Sutherland: Well, these tips, Emma, they're throughout the year for ISA investors. My first one is education. Now this one is so important, but it's unfortunately often overlooked. What I always suggest to people is that they try to read as many books on ISAs and investing as possible. The key here is to make sure that those books are written by successful investors.
I find that the best ones are written by people who have got a very nice writing style. They talk to on a one-to-one basis and in plain English, and I find that the best investment books are written by authors who've got great track records and they have a deep understanding of how the market works.
Wall: Putting some of that education into practice then; what's your second tip?
Sutherland: My second tip, Emma, is to measure. Now this one is simple, but it does require discipline. What I always suggest is that people measure their annual performance. This is really easy to do. All you do is make a note of what your account is valued at the beginning and at the end of the year. You jot down any additions or withdrawals that you made throughout the year and once you know how well you've performed over the 12-month period, you can then do a comparison versus a popular stock index like the FTSE 100.
If you find that you have outperformed the FTSE, then it tells you that you're doing something right and it gives you confidence to stick with your investment approach. However, if you find that you've underperformed the FTSE, then it gives you the opportunity to then change your investment strategy.
Wall: What's the third tip then?
Sutherland: My third and final tip, Emma, is to think long term. Now with thinking long term, this is really good, because it allows you to be a little bit more aggressive with your investment return aims.
Now we aim for 10% to 12% annual return, and we do this for a couple of reasons. The first is because of inflation. Now inflation, unfortunately, kills the buying power of money. That's historically run in about 3% a year. You've also got the cost of investing and that is roughly about 1% to 2% a year. So if you put these two together, you're looking at having to make an annual return of about 4% to 5% just to break even.
Now the other thing that we like about investing for thinking long term is that you can make it a goal for you and your partner to have the maximum ISA allowance each and every year, and as you said in the introduction that's currently £11,520, but it is soon going to be rising from April 6 this year to £11,880. So what we also like about investing for the long-term, thinking long-term, is that you can benefit from the incredible power of compound interest.
And so when you put all these things together, if you learn the secrets of successful investors and you aim to beat the market and you want each and every year and you make it your objective to stay the long-term, invest for the long-term, then you could end up with a very tidy tax-free fortune.
Wall: Stephen, thank you very much.
Sutherland: You're very welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
As always, if you have any questions or thoughts on the points covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.
ISACO specialises in ISA and SIPP Investment and is the pioneer of ‘Shadow Investment’; an easy way to grow your ISA and SIPP at low cost. Together with our clients, we have an estimated £57 million actively invested in ISAs and pensions*. Clients like us because we have a great track record of ‘beating’ the FTSE 100**. Over the last 16 years, we’ve outperformed the Footsie by 60.2% and over the last 5 years, we’ve averaged 14.5% each year versus the FTSE 100’s 8.8%. You can find us at www.ISACO.co.uk.
What is Shadow Investment?
Picking the right fund for your ISA and SIPP is not exactly the easiest job in the world. And knowing 'when' to buy and 'when' to exit is even more difficult! Our ‘Shadow Investment’ Service is here to help. Our service allows you to look over our shoulder and buy the same funds that we are buying.
When we are thinking of buying a fund, we alert you so that you have the opportunity to buy it on the same day that we buy it. We also tell you about when we are planning to exit the fund. You control your investment account, not us. You can start small and invest as little or as much money as you like.
By knowing what we are buying, when we are buying and when we are exiting, throughout the year you can mirror our movements and in effect replicate our trades. This means you have the opportunity to benefit from exactly the same investment returns that we get. Our investment aims are 10–12% per year.
We are totally independent, fully transparent and FCA compliant. We’re warm, friendly and highly responsive and it’s a very personal service that gives you direct access to the Sutherland brothers; ISACO’s two founders.
Who are ISACO’s clients?
Clients who benefit most from our service have over £250,000 actively invested and the majority of them are wealthy retirees, business owners, self-employed professionals and corporate executives. We also have clients from the financial services sector, such as IFAs and wealth managers.
Do you have questions?
To have all your questions answered, call 0800 170 7750 or email us at: info@ISACO.co.uk.
*November 15th 2012: Internal estimation of total ISA and pension assets owned by ISACO Investment Team and ISACO premium clients.
**Long-term performance: December 31st 1997 - December 31st 2013 ISACO 91.3%, FTSE 100 31.1%. 5 year performance: December 31st 2008 - December 31st 2013. ISACO Investment performance verified by Independent Executives Ltd.