Hey, we’re into 2017 already, and April will bring us our next brand new ISA allowance! And it’s big news this year, as the 2016/17 allowance of £15,240 is going up to £20,000 for 2017/18. But what should we do with it?
Here are a few things I recommend:
1. Use up the current year’s allowance
Obviously, not everyone has a spare £15,240 each year to invest, and the past year has been a tough one for a lot of us — but we should use up as much of each year’s allowance as we can.
You might think that missing out on some of this year’s allowance won’t matter because there’s next year’s to come very soon, and then another year’s, and so on…
But over the long term, it really is the early years that matter the most, and every £1,000 you invest now should ultimately be worth significantly more than £1,000 invested next year, or in five, or ten years’ time.
2. Start on your 2017/18 allowance early
Next I’d say don’t sit back and relax because you think you have a whole new year in which to plan things — get your 2017/18 ISA off to the best start you can manage by investing some money in it as soon as you can. Even if it’s only a little, it all helps — and what I think is important is that it keeps you in an investing frame of mind.
If you mentally see a portion of your annual income as being earmarked for shares, it won’t seem like such a sacrifice when the time comes to make a purchase.
3. Invest monthly
Any ISA account worth having will let you set up a monthly transfer, and that’s a great way to do it. You don’t need to push it to the maximum you can manage, because you don’t want to leave yourself short should something unexpected come along and you want to have some cash for it.
After all, you can always make extra payments later if you have spare cash that you’re not spending. But do try to make your monthly investment a meaningful amount.
4. Plan your investments
A regular monthly investment is just the start of good planning, so what next? Decide on the size of the individual share investments you wish to make (it can be cost effective to buy as little as a few hundred pounds’ worth with some low-cost schemes), and work out how often you’ll be able to make a share purchase with your accumulating cash.
And then do your research so you know what shares you want to buy each time, well ahead of your actual purchases. What shares should they be? That will depend on your favoured strategy, but I always think beginners should start with solid big companies paying healthy dividends.
5. Don’t take your money out
Finally, you should usually not take any cash out of your ISA — at least not until you’re set for a comfy retirement and want to start drawing it down to live on!
Although there are some forms of flexible ISA these days that will allow you to take money out and replace it before the end of the year without using up more of your allowance, it’s only an option and not all providers offer it. Most standard stocks and shares ISA‘s won’t allow you to do it, and if you take money out you can’t put it back under your current allowance.