ISAs are wonderful things, but why do they have to be so complicated?
Well, the Chancellor has taken a big stride in the right direction with the Budget this time!
The annual limit is to be raised further then expected — from 1 July, the allowance will be lifted from the old £11,520 to £15,000 per year.
And that nonsense about separate limits for shares and for cash has gone. You’ll be able to split the full £15,000 however you please, with the new rules applying to existing ISAs, too — previously, only half could be held in a cash ISA and the rest had to be in shares. Simplicity is a good thing — a lot of people are currently put off ISAs by seeing the rules as too complex.
Junior ISA limits are also to be raised — the old allowance of £3,720 is to be upped to £4,000 per year.
So, where should you stash the cash?
On the grounds that an ISA is best used for very long-term investing in solid companies, here are three that I think could be profitably stashed away and left to appreciate for a couple of decades:
GlaxoSmithKline
Pharmaceuticals is big business, and companies like GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) have decades of profits ahead of them.
Take no notice of the naysayers who tell you the days of ‘Big Pharma’ are numbered and that the blockbuster-drugs model is coming to an end — it’s not going to happen any time soon. And even when new biotechnology developments come to the fore, who’s going to have the financial muscle to buy up the newcomers and develop their ideas?
Yes, the likes of GlaxoSmithKline, the UK’s biggest listed pharmaceutical firm by far.
Aviva
Insurance is a business that’s as old as the hills and will still be around long after you and I are gone. It can be a bit of a volatile business, but over the long term it has a habit of coming out ahead.
Most of the big insurers would make good ISA investments, but I like Aviva (LSE: AV) (NYSE: AV.US).
With a market cap of £15bn it’s big, it’s largely in the business of life insurance and long-term savings and investments, and it looks good value right now — and though we’re in it for the long term, there’s nothing wrong with taking advantage of short-term bargains.
Aviva had a tough run and had to slash its dividend, but there’s a period of growth expected, yields are still reasonable and the shares are on a forward P/E of only around 10.
Tesco
Finally, sticking some cash into the selling of food is another pretty safe bet. And it’s hard to beat the biggest in the business — Tesco (LSE: TSCO). It’s going through a lean spell, but it still accounts for around a third of the UK’s food shopping (and is pretty adept at non-food stuff, too), and it’s the only one of the big ones with significant overseas presence.
And with dividend yields of 5%, Tesco looks attractive.