As I want to go through things carefully, I’ve split all the details into several different parts, starting with thinking about yourself and what you want with the money, and moving into what there is available, and the nuts and bolts of products and investments. This is part 1 of the basic guide to Stocks and Shares ISAs.
Previously on the basic guide to Stocks and Shares ISAs:
- introduction – what the basic guide to Stocks and Shares ISAs about
First of all, let’s be clear on this, ISAs are just tax wrappers. Like sweet wrappers how good they are depends on what you put inside them. Also like sweets, they don’t have to be complicated if you don’t want them to be. All the examples are specific to ISAs, but the general principles are suitable for all investments.
In the first part of the series, we’ll be starting at the beginning, looking at you, and what you want to do with your money covering:
- The Purpose of the Investment
- The Amount of Money that You Have
purpose of the investment – what is the money for?
There are as many reasons for investing as there are investors. The first step in picking out the best ISA, is knowing what yours is, so you’ve got a reasonable timescale to work with.
Maybe you want to save up for baby Ralph’s Eton College fees (timescale: less than 13 years), or perhaps little Charlotte’s University funds (timescale: less than 18 years), a deposit on your first home in London (timescale: more than 10 years), or retirement (timescale: 30 years?).
On the other hand perhaps, like me, you don’t have a purpose for your funds. In this case ISAs are pretty good because although they should always be considered long term investments, you can get at your money whenever you like – you may have to take a loss to do so though.
Knowing your timescale is important. If it is less than 5 years, you don’t want an investment, you want a savings account. If it is more than 10 years, you almost certainly want an investment account. Between 5 and 10 years, you probably want a more conservative investment.
the amount of money that you have – how much and is it lump sum, or monthly
Most investment accounts have minimums. These minimums are usually per fund / share investment / etc. This affects where you can put your money, so it’s a good idea to know how much money you plan to invest. In addition, some types of investments are cheaper if you have a lump sum to invest, and others are cheaper for monthly investors. Generally speaking, the minimum monthly investment is £50 and the minimum lump sum is £200 but these vary depending on the provider.
All Stocks and Shares ISAs have maximums. You may invest up to £7000 per year (£7200 from April 2008), but that includes the amount that you have saved that year in a Cash ISA.
If you’re investing for the 2007-08 financial year and you have a cash ISA, you can get a stocks and shares mini ISA and invest up to £4000 in it. If you don’t have a cash ISA, you can get a stocks and shares maxi ISA, and invest up to £7000 in it.
If you’re investing for the 2008-09 financial year, you can save up to £3600 in a Cash ISA, and the balance up to £7,200 can be invested in a Stocks and Shares ISA. For example, if you put £2,000 in a Cash ISA over the whole financial year, you can invest up to £5,200 in a Stocks and Shares ISA, for a total of £7,200.
One important feature of ISAs, is that it’s not the balance that you contribute, it’s the total amount that you put in. This means that if your invest £1000, and then withdraw £200, it’s still treated as if you invested £1000.
In addition, ISA allowances are not transferable across the financial year – if you don’t invest in 2007-08 then you can’t carry over your allowance to 2008-09. Just in case you can’t remember, the financial year runs from 6th April to 5th April, so if you haven’t taken out a stocks and shares ISA for 2007-08 there’s still time.
So, we’ve discussed the purpose of your investment, which led onto the timescale you are looking at investing for, and the amount of money that you have to invest, considering all the limits on ISAs. We’ll use these two pieces of information to help find an appropriate ISA investment.
still to come…
Coming up in the basic guide to Stocks and Shares ISAs:
- part 2: all about risk – successful investing means always being able to sleep at night
- part 3: all about investments – what types of investments that you can put into ISAs
- part 4: all about asset allocation – how to decide which mix of investments is right for your ISA
- part 5: all about funds – narrowing down your choices
- part 6: all about providers – getting the best deal for the money
- conclusions – what’s been covered, and what to do next
- basic guide to Stocks and Shares ISA: conclusions
- basic guide to Stocks and Shares ISAs: introduction
- basic guide to Stocks and Shares ISAs part 2: all about risk