How To Choose The Right ISA - A Step By Step Guide

Let's get started with a brief introduction…

An ISA (Individual Savings Account) is a tax-efficient annual investment allowance launched in 1999 to replace the PEP and TESSA allowances. When you put your savings, shares or life insurance into an ISA account, the income and gains from the investments are sheltered from capital gains tax and the growth is free from income tax (although dividend income is taxable, paid by the ISA manager). 

There are two ways of investing: 

• Maxi - an account from one provider that takes in the full £7,000 annual allowance. Maximum of £3,000 in cash and £4,000 or £7,000 in stocks and shares. 
   
• Mini - one account per component, with £3,000 for cash and £4,000 for stocks and shares. These can be from two separate providers.

An ISA is simply a tax wrapper. If you invest in a stocks and shares type ISA, it’s likely your money will be invested in what is known as a pooled fund. The most common ones are Investment Trusts, Unit Trusts and Open Ended Investment Companies.  

Many investors are confused about how to choose the right ISA. This is hardly surprising as there are over one hundred providers and thousands of funds to choose from.  

More surprisingly, many ISAs are purchased without much research having been done by the investor. This includes areas such as assessing attitude to risk and deciding how much should be invested in equities (shares), property and bond funds.

Perhaps one of the biggest mistakes that we repeatedly see is where an investor has purchased an ISA many years ago and not reviewed it since to make sure it is still suitable for them. It’s crucial you review any investment you make at least annually. The investment market is dynamic and your circumstances will continually evolve, so NOT reviewing could cost you.  

Look out for the next post where we'll be looking at ISA Basics.

An Individual Savings Account is a crucial part of the financial planning strategy of any doctor or dentist. Over the next few posts we're going to look at your ISA options so that you’ll be able to make the right decisions relevant to your specific situation. We’ve split it into 5 sections: 

• ISA basics
• Risk: What you need to know before you invest
• Asset allocation and deciding where to invest
• Choosing your ISA fund(s)
• Choosing your ISA provider(s)

I would hope that once you read through the next few posts you will:

• Be able to make investment decisions with more confidence
   
• Understand what you need to do with any existing ISA and PEP investment funds