DIY Investor Magazine
/
March 2016
16
5 TIPS FOR INVESTING IN INVESTMENT
TRUSTS THROUGH AN ISA
An Individual Savings Account, (ISA), is the armour that
guards your money from the tax-man; enabling it to
grow without the burden of income or capital gains tax.
There are two types of ISA; a cash-ISA is a tax-free
savings account and a stock market ISA holds
investment funds, trusts, or shares. Both offer tax
protection which can largely impact on the value of
the ISA over the long-term, particularly if you are a
higher rate tax payer investing in the stock market.
1. DIVERSIFICATION IS THE KEY TO SPREADING
INVESTMENT RISK
For smaller-scale investors, holding individual shares in
one or two companies is a fairly high-risk approach to
investing; if one of those companies found itself in hot
water, the whole investment portfolio would be affected
There are various ways of spreading this risk and
therefore reducing it, however.
Diversifying investments across geographical regions,
asset classes, and funds or trusts, will spread risk
across a broadened portfolio. Investment trusts have
the added benefit of oversight from an independent
board, which acts to both challenge or support the fund
manager in their investment decisions, as-and-when is
necessary.
2. WATCH OUT FOR CHARGES
Charges can have a major impact on the total returns of
an investment; therefore it is important to be clear
on what exactly you are paying for. Passive fund
management, where a computer buys all of the assets
in a particular market index, is often cheaper than
paying for an actively managed fund, which is run by
a fund manager who makes calculated investment
decisions on your behalf.
If you choose to pay for an actively managed fund, you
must make sure that the fund manager is adding
value to your investments and is consistently
outperforming the market index; at Henderson Global
Investors, many of our investment trusts are run by the
company’s most experienced fund managers.
3. REGULAR SAVING
A regular saving scheme, for example on a monthly
basis, could be an effective way of managing
investments without having to part with a large chunk
of money in one go.
There is also less risk involved with a monthly drip-feed
of money into your investments as you are less affected
by the ups and downs of the market, buying more units
when the market is cheaper and fewer when it is more
expensive.
This means that you can actually end up with more
shares for the same amount of money invested.
4. SHIELDING CURRENT INVESTMENTS FROM
FUTURE TAX
In the past, investors could ‘bed and breakfast’ an
investment by selling it on the last day of the financial
year and buying it back the following day, with
the intention of rebasing its value and avoid
accumulating capital gains.
This is no longer allowed; however, it is possible to ‘bed
and ISA’ existing holdings by selling shares worth
£11,000, (which is the capital gains exemption amount),
and then re-buying them within an ISA, in order for any
forthcoming income and growth to be tax-exempt.
Whilst this process does generate a capital gain, it is
not necessary to pay any tax as the profit from the sale
is less than the capital gains tax exemption.
CHARGES CAN HAVE A MAJOR IMPACT ON THE TOTAL
RETURNS OF AN INVESTMENT; THEREFORE IT IS
IMPORTANT TO BE CLEAR ON WHAT EXACTLY YOU ARE
PAYING FOR.
