Today is ISA deadline day. That means that it’s your last chance to make use of your 2019/2020 tax-free ISA allowance. Once the clock ticks past midnight, this year’s allowance is gone forever.
Have some cash available to deploy towards this year’s allowance? Here’s what I’d do.
Don’t miss ISA deadline day
There are currently four different types of ISAs that you can put your money into (I’m ignoring the Junior ISA for now):
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Stocks and Shares ISAs
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Lifetime ISAs
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Cash ISAs
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Innovative Finance ISAs
Of these four ISAs, my preferred picks are the Stocks and Shares ISA, which has an annual allowance of £20,000, and the Lifetime ISA, which has an annual allowance of £4,000 (which counts towards your overall £20,000 allowance).
The reason I like the Stocks and Shares ISA is that it enables you to invest in a wide range of stocks and funds on a tax-free basis. That means that it’s a very powerful investment vehicle. I also like the fact it’s flexible. If you need access to your money, you can access it at any time without penalty.
The reason I like the Lifetime ISA (which also enables you to invest in a wide range of stocks and funds tax-free) is that it comes with 25% bonuses from the government, which is a super deal. However, I’ll point out that this ISA is only open to those aged between 18 and 40, and it’s designed for those who are saving for retirement or for their first property. There are penalties if you withdraw your money before you turn 60 or buy your first house.
As for the Cash ISA, it’s not so effective in the current low-interest-rate environment. Given that every basic-rate taxpayer in the UK can earn £1,000 interest per year without paying tax on that money, you’d need to have around £80k in a Cash ISA (assuming interest rates of 1.3%) to see any benefit.
Get your ISA money working for you
Of course, putting your money into an ISA before the deadline is really only the beginning when it comes to boosting your wealth. The most important thing is to get that money working for you.
The good news is that you’ll have plenty of great options if you put your money into a Stocks and Shares ISA or a Lifetime ISA.
One solid option is to invest in a fund. This is where your money is pooled together with the money of other investors and managed by a professional portfolio manager. If you’re looking for a top fund, I’d check out Fundsmith Equity. It’s returned around 95% over the last five years, although past performance is no guarantee of future performance.
Another option is to go for a low-cost exchange-traded fund (ETF). This approach may be more cost-effective in the long run. One of my favourites here is the iShares Edge MSCI World Quality Factor UCITS ETF, which invests in strong and stable companies worldwide.
Finally, if you don’t mind doing a bit of research yourself, you could also pick your own stocks. This approach gives you more flexibility and could enable you to enjoy big profits if you pick the right stocks. If you’re looking for stock picking ideas, you’ll find plenty at The Motley Fool.