Cash ISAs and Equity ISAs
Discussion
Here's my situation. I've been contributing to my cash ISA every year for a while, the idea being that I build up a pot of cash for rainy days or should the worst happen etc. Now realistically I'd go to pretty extreme lengths to keep that cash in there as I believe there's value in keeping that money out of declared income (currently lower-rate taxpayer by the way).
So I was thinking last night - given everything goes ok in life then I'd probably not touch it until retirement or 45+ (mid-20s now).
I also have a stocks and shares ISA which i'm building up as well...so question is - can anyone tell me why I shouldn't transfer the cash ISA into stocks and shares with potential for more return? I think given interest rates etc in real terms my cash ISA is gradually losing value and not being very useful except for the undeclared income aspect.
I am not averse to risk, I'm young-ish and can stomach losses in the search for a better return than 3% interest. (I also believe shares are due a pullback soon so medium-long term the gamble should pay off!)
So I was thinking last night - given everything goes ok in life then I'd probably not touch it until retirement or 45+ (mid-20s now).
I also have a stocks and shares ISA which i'm building up as well...so question is - can anyone tell me why I shouldn't transfer the cash ISA into stocks and shares with potential for more return? I think given interest rates etc in real terms my cash ISA is gradually losing value and not being very useful except for the undeclared income aspect.
I am not averse to risk, I'm young-ish and can stomach losses in the search for a better return than 3% interest. (I also believe shares are due a pullback soon so medium-long term the gamble should pay off!)
You really don't want to have a big % of your savings in cash at your age....the power of compounding is huge. i.e. a 7% return a year will see your money double after 10 years. Realistically you will struggle to find something that will have a conservative risk profile that will make 7% a year every year.
The good news is that if you invest in say a FTSE based fund a very large % of earnings of the FTSE 100 companies are from overseas which is good for diversity.
I wouldn't do anything immediately but read a few articles on funds (the Sunday Papers will be full of them with the end of the tax year coming up) and see if there is anything that catches your eye.
What might be a good strategy is to move your cash gradually (as long as it doesn't incur extra cost) from cash to either individual shares or investment funds.By doing it gradually over a few months you hopefully will not get any nasty surprises in terms of general market movement.
I would steer clear of individual shares unless it's a company you really understand and have a good feeling for and I wouldn't go for individual shares recommended in the press. Every man and his dog was recommending RBS shares for the two or three years before it effectively went bust as a cheap share (it was the worst performing banking share in Europe for two years running)...the markets could see RBS was growing it's earnings with a balooning balance sheet rather than organic growth so discounted the value of those earnings as they were much riskier...we all know what happened next.
The good news is that if you invest in say a FTSE based fund a very large % of earnings of the FTSE 100 companies are from overseas which is good for diversity.
I wouldn't do anything immediately but read a few articles on funds (the Sunday Papers will be full of them with the end of the tax year coming up) and see if there is anything that catches your eye.
What might be a good strategy is to move your cash gradually (as long as it doesn't incur extra cost) from cash to either individual shares or investment funds.By doing it gradually over a few months you hopefully will not get any nasty surprises in terms of general market movement.
I would steer clear of individual shares unless it's a company you really understand and have a good feeling for and I wouldn't go for individual shares recommended in the press. Every man and his dog was recommending RBS shares for the two or three years before it effectively went bust as a cheap share (it was the worst performing banking share in Europe for two years running)...the markets could see RBS was growing it's earnings with a balooning balance sheet rather than organic growth so discounted the value of those earnings as they were much riskier...we all know what happened next.
A couple of things:
You can transfer your cash ISA into a S&S ISA but you won't be able to transfer it back again.
Bear in mind that if you go through an adviser, you could be looking at paying upto 4-5% of the transfer value as a fee. Non-advised sales are usually in the order of 0-1% initial fee.
It might be worth considering a self select S&S ISA which allows you to hold a combination of funds and equity. You could try some Oil ETFs, Lloyds shares, maybe a FTSE tracker (although I think the boat has sailed on that one), natural resource funds...etc
You can transfer your cash ISA into a S&S ISA but you won't be able to transfer it back again.
Bear in mind that if you go through an adviser, you could be looking at paying upto 4-5% of the transfer value as a fee. Non-advised sales are usually in the order of 0-1% initial fee.
It might be worth considering a self select S&S ISA which allows you to hold a combination of funds and equity. You could try some Oil ETFs, Lloyds shares, maybe a FTSE tracker (although I think the boat has sailed on that one), natural resource funds...etc
Seany88 said:
Ok thanks. I already hold shares in a few companies outside of an ISA - i'm with TD waterhouse. Anyone know if I can just ask them to transfer it into the ISA without having to sell and re-buy?
Shares can't be transferred into an ISA. They have to be sold and the cash transferred in and then the stock repurchased within the wrapper.Gassing Station | Finance | Top of Page | What's New | My Stuff