For the £30,000 you are considering investing, the first port of call would be to utilise the Isa allowance you have left this tax year. The rest can be put into a general investment account.
Once the new tax year starts, consider redirecting money from this account to the Isa wrapper by doing what’s known as a “Bed and Isa” transfer. This is a process where you sell holdings outside tax wrappers and repurchase them within your Isa.
Provided the profit you realise for the tax year in question (you can also deduct any losses you’ve made) is within the capital gains tax allowance, it should not trigger a tax charge.
You mention that there’s an old cash Isa that doesn’t have a great savings rate. It would be prudent to transfer this to somewhere offering a better interest rate, or invest the money if you have a sufficient cash savings buffer and no short-term plans to access it.
Next, the million-dollar question of where to invest and what to invest in. As you are a novice investor, I would suggest keeping things simple to start with by “owning the market” through index funds or exchange-traded funds (ETFs). I’ve invested in these types of funds, but also have so-called active funds, in which a professional investor aims to outperform the market.
In terms of index funds, I would suggest looking at multi-asset funds, which invest in shares and bonds, and are low cost. Such funds are a one-stop shop to the world’s markets and are viewed as an ideal starting point for beginners due to the diversification offered by the spread of investments.
The market leader is Vanguard’s LifeStrategy range, and its 20pc, 60pc and 80pc equity funds sit on Interactive Investor’s Super 60 list of fund ideas. BlackRock’s MyMap investment range does a similar job, alongside Legal & General Investment Management’s Multi-Index funds and abrdn’s MyFolio Index range.
Before committing money to the stock market, decide what you want to achieve, how long you are planning to invest for, and how much risk you are prepared to take. It is key to understand your tolerance for risk as well as your appetite for reward.
With the three index ranges mentioned above, some of the funds are more conservatively invested by having a lower exposure to shares. Due to this, when stock markets fall such funds should be better equipped to protect your capital. The trade-off, however, is that when markets rise, funds that are more cautiously positioned will generate more modest returns.
Funds adopting a medium-risk approach have about 60pc in shares and 40pc in bonds, while funds that are classed as being adventurous will typically have 80pc or more in shares. Such funds offer the possibility of higher returns over the long term but tend to protect capital less when markets fall.
The other option, for those who don’t want to pick their own funds, is to consider managed products. After completing a questionnaire, investors are directed into a fund. At Interactive Investor, we have our own Managed Isa, which offers investors access to a range of diversified portfolios, with annual fees starting at just 0.13pc.
Kyle Caldwell is funds and investment education editor at Interactive Investor
