Stocks and shares ISAs are excellent financial vehicles for those who are looking for a higher return when compared to a standard tax-free individual savings account (ISA). A stocks and shares ISA allow the account holder to invest across a wide spectrum of assets; leading to potentially significant amounts of profit over time. As it is now possible to place up to £20,000 pounds within such a vehicle, those who are looking to circumvent capital gains tax obligations can often enjoy impressive returns if they choose their investment strategies wisely. What are some useful recommendations that can be leveraged in order to create a sizeable nest egg?
The benefits of collective investment schemes
One of the issues associated with becoming involved standard stocks is the simple fact that future rates of return can be unpredictable. Even professionals will make mistakes on occasion. This is when the power of diversity comes into play. These are often found in the form of collective investment schemes. A handful of common examples include:
- Mutual funds
- Indices (such as the FTSE 250)
The primary takeaway point is that collective investment programmes are known for their ability to mitigate much of the volatility that is attributed to individual shares. For example, the FTSE 250 has demonstrated an annualised rate of return of 9 per cent; a welcome change for those who are looking to embrace more predictable profit margins (1).
Equity income funds
It is always important to include dividends within a well-rounded stocks and shares ISA. This is why equity income funds represent another worthwhile “string to the bow”. These funds primarily work with well-established firms that offer regular dividend payments. Once again, this is often a welcome alternative when compared to investing in a single asset due to the fact that funds spread the risk across a number of holdings. Keep in mind that the associated transaction fees are lower and less frequent; leading to higher profit margins. Some examples of funds that have provided consistent returns include the FTSE Equity Income Index Fund and the American S&P 500 index tracker.
What about small-cap holdings?
One of the benefits associated with a lucrative small-cap investment is that it can often produce appreciable returns. This is particularly the case with technology-oriented companies and those which choose to float during bullish times. However, it still needs to be pointed out that higher degrees of liquidity are also associated with more appreciable levels of risk. This is why small-cap holdings should generally comprise no more than 20 per cent of the total stocks and shares ISA.
Ultimately, these and other choices will be based upon the discretion of the account holder. The main point to emphasise is that longitudinal growth can be achieved without placing your funds at risk thanks to conservative and complimentary investment strategies. It is therefore clear to see why stocks and shares ISAs are extremely popular financial vehicles to consider.
Added to this is the fact most service providers like Moneyfarm allow you to transfer ISA accounts for free and keep your money in one place. It’s as simple as logging into your account and filling in transfer details. Using a fully transparent account it is easy to analyse how you’re performing and how you’re paying using the app.