Now or never for this year’s ISA?

As the days count down to the end of the tax year, how many investors have yet to decide whether, or where, to use their ISA allowance? And how are uncertain times effecting investors?

Stephen Palmer of Cranwell Wealth Solutions in Uckfield explores the various options here.

It’s often said that time in the market is more important than timing the market. But given the current uncertainties around the world, is it sensible to hold off and look for a ‘better time’ to invest money in an ISA?

Last tax year saw an encouraging 28% rise in the amount put into Stocks & Shares ISAs (see reference 1 and 2), as increasingly confident investors sought to capitalise on strong stock market performance. Despite that, Cash ISAs still accounted for three-quarters of all subscriptions (2) ; the cash habit among UK savers is still proving a hard one to break.

But investors were unnerved as markets stumbled at the end of 2018 under the weight of various global economic and political worries. Faced with this short-term uncertainty, many may still be opting to ‘wait and see’ before investing again.

For now, banks appear to be the beneficiaries of this greater caution. Latest figures from UK Finance show that nearly 77% of all savers’ funds held by high street banks is sitting in easy access accounts (3), on which banks pay the lowest rate of interest. Even for the most tax-efficient Cash ISA, the average no notice rate is currently just 0.94%; no single sector of the savings market has seen average rates rise by the full 0.25% hike in the base rate made by the Bank of England six months ago. (4)

The volatility seen at the end of last year may still be on the minds of many potential investors. In fact, markets have staged a strong recovery so far in 2019, largely reversing the losses in the final quarter of last year. So, have investors who were waiting on the side lines missed the bounce? Or should they continue to sit it out until Brexit unfolds (or unravels), or tensions ease between the US and China?

Of course, no one knows how these events will play out, or if and how markets will react. What we do know is that whether the next move for markets is up or down doesn’t matter to longer term investors who have the patience to ride out the peaks and troughs.

Looking back to the Global Financial Crisis of 2007-2008 provides a useful illustration of the importance of time in, not timing. Using the FTSE All Share index, the chart plots a number of possible investment points: when the UK market was on the way down; when it reached its bottom (in theory, the perfect time to invest); and as the market was on the way back up.

The value of a notional £100,000 investment based on the UK stock market at each of these points would have been as shown below. (Please note, however, that it is not possible to invest directly into the UK stock market).

Obviously, you would have been most successful if you had managed to invest when the market was at its lowest point. But even if you had invested just before the market fell, you would still have made positive returns over five years. And regardless of when you invested, returns over the longer term would have been even stronger.

It’s often said that stock markets climb a wall of worry; the current list of political and economic concerns will inevitably be followed by another. The fact is that uncertainty and volatility are trademarks of investing. Yet, it’s all too easy to allow short-term events to distract you from sticking to a plan, and taking the right steps, to help achieve financial security.

Making sure this year’s ISA allowance doesn’t go to waste is one important step towards helping create wealth for the future as is always approaching your investments with a long term point of view. Remember the deadline for ISA investments in this financial year is midnight on the 5th April 2019.

Please be aware that past performance is not indicative of future performance. The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

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1,2 HMRC, Individual Savings Accounts (ISA) statistics, September 2018.

3,4 Moneyfacts UK Treasury Report, February 2019.