Diversifying your investment portfolio is beneficial for multiple reasons. But choosing specifically to invest in Individual Savings Accounts (ISAs) as part of this diversification can bring a whole host of advantages.
Read on to learn about the power of ISAs when investing for the future, alongside how things like careful planning, risk management, and an online wealth manager can help to improve your investments.
How do ISAs work?
ISAs allow you to invest money each year into a specific account that shelters your savings from tax – these are often known as tax wrappers.
The annual ISA allowance determines how much you can save each year tax-free in your ISAs – currently £20,000 for the 2023/2024 tax year.
For a standard cash ISA, you simply save this money in your account each year where it remains free from tax, and you can withdraw the funds at any point – also tax-free.
There are four different types of ISA – cash ISA, innovative finance ISA, Lifetime ISA, and stocks and shares ISA.
Your total allowance must be shared across all types of ISAs you open in the tax year, but you can only open one of each kind.
For example, you can invest £10,000 in a stocks and shares ISA, £6,000 in a cash ISA, and £4,000 in a Lifetime ISA in one year.
By saving in ISAs, there are many ways to improve your investment portfolio:
- Saving tax-efficiently
Firstly, ISAs offer the main benefit of tax-efficient investing for your portfolio. This means you can grow significant sums of money each year, without needing to worry about the impact of tax on your wealth.
With stocks and shares ISAs, for example, you can grow your savings further with successful investments in certain securities. Any growth made from this will also be free from Capital Gains Tax (CGT).
- Managing risk more effectively
ISAs can also help you manage risks more effectively within your portfolio.
You can diversify your investments across different types of ISAs, so in the event of any unsuccessful investments or external impacts – such as inflation or market changes – you still have other savings that could remain unaffected.
A wealth manager can help you choose the right risk levels for your stocks and shares ISA investments, so you grow your wealth in a way that aligns with your financial situation.
- Building wealth towards your goals
Another benefit ISAs can bring to your investment portfolio is that they can be used to grow your wealth towards a range of goals.
Since you can withdraw money from your ISAs at any time, tax-free, you can use these savings for a range of scenarios.
If you’re saving for a home, building wealth for your family, or wanting to protect your wealth during a divorce, ISAs can be a great addition to your portfolio.
You can also build an ISA alongside your pension, so you have more savings to access when you retire.
Will you be adding ISAs to your investment portfolio?
If so, be sure to speak to a modern wealth manager who can help you structure your ISA approach appropriately for your financial situation.
This way, you can retrieve all the benefits and potential that lie within ISA investments towards your future goals.
Please note, the value of your investments can go down as well as up.