For the investor who knows what they want, Self-select ISAs offer the most flexible approach, allowing you to choose your own shares, funds, ETFs or investment trusts. These schemes cover a range of asset classes and markets, so you can make up your own portfolio - or use your ISA allowance to target one specific investment to compliment your wider portfolio. However, choosing your own shares can be a risky approach and, unless it forms part of a wider share portfolio, can concentrate your investment around the fortunes of just one or two companies. Many investors therefore choose to put their ISA allowance into something more diversified, such as a collective scheme or fund, which reduces risk by accessing a whole selection of shares for a relatively small investment.
There are many funds to choose from and some prioritise income and some capital growth. Over the long-term, those with higher equity content have generally offered higher returns than equivalent investments in cash, bonds or commercial property. However, equities can go down as well as up and have been volatile. Funds are grouped into categories to give you an indication of their aims. For example, the ‘Mixed Investment 20-60% shares’ category will have no more than 60% in shares. More aggressive funds may be found in the UK Smaller Companies, UK All Companies or Global Emerging Markets sectors.
If you need income from your ISA then you may wish to consider a fund that delivers regular dividend, rental or interest payments. The three main choices are equity income, commercial property or bonds. There are a number of funds that combine these asset classes together, thereby producing income with a more diversified portfolio.
Ultimately, the choices you make for your ISA have to reflect your aims and goals and sit within any wider portfolio you might hold. If you want to make sure you have covered all the options available, you can always seek professional advice.
Past performance is not a reliable indicator of future results.
Paul Dixon FPFS
Chartered Financial Planner
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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.