From July 1 2014 you can put up to £15,000 a year in tax-free savings and investments.
This
is a considerable boost to the current limit of £11,880.
For
those investors keen to sell down some of their shares Isas into cash,
the best one-year cash Isa rate currently available is 1.65 per cent
from Tesco Bank.
Put in the
full allowance and you’ll receive interest of just £247.50 over a year.
This means savers hoping for a better bounty will have to keep some
exposure to stock market risk. But few people apart from the stock
market sophisticates should consider using their whole allowance for
investing.
There
are a few golden rules for investing: spread your risk, drip-feed your
money in and review your investments on a regular basis – twice a year
at least.
Try
to put your money across more than one fund. By investing in steps, you
can build a balanced portfolio and minimise disruption to your
investments.
A
typically cautious investor seeking to protect their capital but keen to
earn income should start with equity income funds and possibly add a
dash of risk from an emerging markets fund.
Darius
McDermott, managing director at Chelsea Financial Services fund broker,
recommends the Threadneedle UK Equity Alpha Income fund. It invests in
big UK companies such as oil giant BP and insurers Aviva and Legal &
General – businesses very adept at pumping out profits during all kinds
of economic weather.
These
firms are steady growers and good dividend payers. The fund’s annual
dividend is currently 4.2 per cent. If you had invested £1,000 five
years ago it would now be worth more than double – £2,223 – figures from
Trustnet show.
The Invesco Perpetual Monthly Income Plus is another of McDermott’s fund tips, yielding 4.1 per cent.
The fund is spread across company shares and investment grade and high yield bonds.
An
alternative income fund is the slightly higher risk Henderson UK
Property fund. This fund, investing in a mix of office blocks,
warehouses and retail units generating income from commercial tenants,
has a yield of 3.8 per cent.
The
added risk comes from the fact property is a relatively illiquid asset
which can be difficult to exit during economic turbulence.
For those
happy to inject a degree of danger, the Lazard Emerging Markets fund
could fit the bill says Ben Yearsley, head of investment research at
online broker Charles Stanley Direct. Over the past five years, it would
have turned your £1,000 into £1,676.
If you’re looking to grow your capital rather than seeking income, consider including a global equity fund to your portfolio.
Artemis
Income’s recent performance has been a little shaky but it would have
almost doubled your money over the past five years. This fund is
invested mostly in UK shares, with some European and US companies thrown
in too.
Another
top fund for growth investors is Standard Life GARS. It has been a fair
performer and has grown by 46 per cent over the past five years.
Whether you are an income investor or growth investor, you could broaden your risk with an index-linked gilt fund.
These invest in bonds issued by the Government which pay an interest rate linked to inflation.
Although
bond funds have traditionally been seen as a safe choice, there are
question marks hanging over these at the moment. Fears of a bond sell
off have plagued the market since late 2012.
The
Government’s policy of printing money to boost the economy, known as
Quantitative Easing, saw the Bank of England flood the economy with cash
by buying bonds. This sent their value soaring.
Now that QE has come to an end, and the economy is back on the front foot, interest rates look set to rise soon.
When this happens, bond values will fall – and the interest paid out will seem less attractive.
However
you decide to split your money, it is vital to review your investments
regularly. Small blips are fine, but if there is a big shift in
sentiment, you need to be aware.
Source: http://www.thisismoney.co.uk
22:23, 20 June 2014