By ADRIAN LOWCOCK 06/04/2009
ISAs are the most accessible tax efficient investment vehicle. Why wait another 12 months before doing your ISA?
One thing we know for sure is that investing in an ISA at the start of the tax year will give you an extra 12 months of tax efficient income and the potential for growth.
Income tax savings
If you had used your ISA allowance at the start of the last tax year, a higher rate tax payer could have saved £144 investing in a corporate bond fund and £81 of dividend income from an equity based fund.*
Monthly savings
Of course you may not be in a position to invest all your ISA allowance immediately. Many prefer to spread their investments throughout the whole tax year. There are many advantages to putting your money into investments on a monthly basis. Indeed, the Government has recognised the attractiveness of regular savings plans by increasing the ISA allowance to £7,200 so that this divides cleanly by 12 months - £600 per month. So, what's all the fuss about? :
- Avoid trying to call the market - no one knows when they invest whether in the short term their investment will rise or fall. Investing your whole ISA allowance in at once may lead to you regretting that decision, in the short term, if you then see it fall in value. Monthly savings enable you to spread your investments throughout the year.
- Pound cost averaging - because you have 12 monthly payments sometimes the price will be higher and sometimes lower. At the higher price you will buy less units than at the lower price. Over the 12 months you will buy more units at the lower prices which will result you paying below the average price during that period.
- Flexibility - by paying monthly you can decide which funds you wish to invest and can review your investment choices and contributions at any point, making adjustments to reflect the changing economic landscape.
- Cash flow - Regular savings schemes can be stopped or started at any time, or you can simply vary the amount into each fund if needed. A monthly savings plan divides the contribution into bite size amounts that are easier on your cashflow
Cash
Alternatively, you can set up your ISA now, place the money in cash and then, when you are ready you can switch over into the fund(s) of your choice.
Still not sure? Our investment advisers are on hand to help you. You can call them on 020 7189 9999, 8:30am to 5:30pm, Monday to Friday. Alternatively, you can e-mail them at best@bestinvest.co.uk.
* We have assumed a 5% yield for both the corporate bond and equity income funds inside an ISA. The income actually received may vary over time and could be lower than these levels..