Have you got cash invested an ISA account? If you do, and if I were a betting man, I’d guess that you’re pretty upset and frustrated by the returns you’re able to make at the moment.
I just did a quick search on Google for “best ISA rates” and hopped onto Money Supermarket. They were top of the results list. Their best easy access product is sold by the Coventry Building Society and pays out just 0.90% AER.
That’s not even enough to grow your savings in line with inflation, let alone see any real growth. You’re actually making a loss every month that you’ve got money in an account like this. That can’t be good for anyone looking to build their wealth.
The good news is that you do have the potential to break away from these record-low returns. And fortunately it isn’t difficult to do so.
ISAs aren’t all about cash
You’ll probably know that ISAs aren’t just about cash. If you’re prepared to take some performance risk, investing in stocks and shares could give you much higher returns. The Managed Growth Fund 4 from Halifax is marketed as a medium risk – medium return investment. In the 12 months to 31 October that fund grew by 10.4%.
That’s a much healthier figure than the cash ISA.
To be clear: We’re not comparing apples with apples here. I’m not saying that the Halifax product is better than that sold by The Coventry. They’re different products offering different investment opportunities.
If you want to get a decent ISA return these days, you need to think beyond cash - Nigel Reeves
I just want to challenge you if you’re one of the thousands of people who keep their money in cash without thinking about the alternatives. You could be leaving a lot of money on the table if you’re in the habit of piling your money into cash ISAs year after year.
It’s important to consider how you want to invest your money before you answer who you think about what fund or provider to use.
The truth is that your investment objectives and attitude to risk are the main drivers of which asset classes you invest in. You can read more about those in the panel below.
ASSET CLASSES EXHIBIT DIFFERENT CHARACTERISTICS
An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents.
Also called equities
- Shares of ownership in publicly held companies
- Historically have outperformed other investments over long periods
- Most volatile in the short term
- Returns and principal will fluctuate
Also called bond investments
- Set rate of interest
- More stable than stocks
- Value fluctuates with interest and inflation rates
- "Guaranteed" or "risk-free" assets available
- Set rate of interest
- Lowest risk and returns of all asset classes
- Real value fluctuates with inflation rates
TIP: Set up a free call with one of my investment specialists if you want help thinking through how best to invest your money.
So going beyond cash is the first thing to consider if you want to get more from your ISA investments. But you can actually crank the lever still further.
Make your money work harder by actively managing your portfolio
According to well known studies by Brinson and colleagues, more than 90 percent of the variability in investment performance over time is determined by asset allocation policy. So, if you want to make your money work harder, you need to pay particular attention to asset allocation.
That means knowing how much cash to hold, knowing how much to invest in equities and how much in bonds. And if you’re to get the most from your investments, it means also knowing how that split should change over time as market conditions fluctuate.
In other words, you need to actively manage your portfolio; regularly reviewing the markets and moving money between funds AND asset classes as necessary.
That’s very different to the fixed allocations on offer through most stocks and shares ISAs. It’s also a very difficult task for an individual investor to execute. Enter the portfolio manager.
A portfolio manager can relieve the burden of investing
Working life has never been busier. It’s very rare that I’ll speak with a client who has the time to think about their finances in detail, let alone execute any decisions. Failure to spot market shifts or poor fund performance could destroy your wealth. Using a portfolio management service solves this problem.
A suitably qualified and experienced investment specialist will help you actively manage your investments to maximise your returns so that you can be free to get on with your life. They will regularly review the markets, assess the performance of your investments and consider any changes that might be appropriate for your portfolio.
The benefits can be substantial and could deliver a step change in the growth of your investments.
Download this case study if you want to discover how my firm helped a director living in Newcastle break free from the low returns of cash ISAs and grow their investments by 10.4% in the past 12 months.