The Inland Revenue has given investors the chance to benefit from tax-free savings by investing in an Individual Savings Account or ISA. It is possible to invest up to £10,200 in a stocks and shares ISA each tax year. The risk averse may wish to consider a cash ISA.
Risk vs Reward - Higher Returns In a Stocks and Shares ISA
It is possible to keep capital safe and benefit from a steady capital growth in a cash ISA. A cash ISA won't make anyone rich, but it is a great savings account for the risk averse. Other cautious investors wishing to take advantage of a stocks and shares ISA may wish to consider a protected capital FTSE tracker.
Just as risk is abhorrent to certain people, conservative investments are extremely unappealing to those wishing to take a chance to secure higher investment returns. Higher returns of 40-50% aren't uncommon for those investing in an emerging markets fund.
Whilst everyone would like to enjoy tax-free savings and substantial gains in an emerging markets fund, it is important to accept that the investment capital is at risk. This means that it is vastly more sensible to invest in a variety of equity-based funds in order to spread this risk.
Different Types of Higher Risk Stocks and Shares ISA
- Emerging markets fund. These funds seek to identify investment opportunities in fast-growing, emerging economies. These tend to concentrate on Asia and Eastern Europe;
- Self-select ISA. It is possible for an investor to open a stocks and shares ISA with a non-advisory broker and select their own share portfolio. Some investors have created substantial tax-free savings by investing in technology shares before the boom. Others may wish to take advantage of falling banking shares;
- Index trackers. Low management charges make a FTSE tracker a popular investment, particularly when market levels are low. Buying into a FTSE tracker can prove to be a very smart move after substantial falls for those prepared to take a longer term investment perspective;
- Green funds. Those that don't wish to compromise their ethics may wish to invest in green funds. Most funds marginally under-perform because of the higher ethical stance, but many still make investors decent returns.
Cash ISA vs Stocks and Shares ISA
All investors have a different attitude towards risk so it is important to consider all options carefully before investing your money in tax-free savings. Those with a lower risk profile should normally opt for a cash ISA or capital-protected FTSE tracker ISA.
Sources
"Stocks and shares ISA's explained." Which Magazine.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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