In the run-up to the end of the 2009-2010 tax year, here at Morningstar we've been joining the rest of the investment community in ensuring we're making the most of tax-efficient saving and investing offered by ISAs. Our own fund analysts have reviewed their investments and written about plans to change, or stick with, their chosen funds and other assets. Here, as Online Editor of Morningstar I also outline my own plans for investing in ISA-eligible vehicles. You can find out what Morningstar Fund Analysts, including the UK Director of Research, have been doing with their ISA allowances by checking out our ISA page, where you will also find plenty of case studies and additional articles on investing in ISA-eligible vehicles and managing an ISA portfolio. For more information on what an ISA is and how to take advantage of tax-efficient investing, watch this video.
Holly Cook, Editor, Morningstar.co.uk and Hemscott.com:
I have been meaning to take advantage of the benefits offered by investing--or, indeed, saving--in Individual Savings Accounts for years but, like many would-be investors, it has all-too-often dropped off my To Do list. This year is going to be different. When the new tax year starts on April 6, 2010, I plan to kickstart one of many finance-related New Year's resolutions and invest in a carefully-chosen fund, while also setting aside some savings in a cash ISA for a particular purchase I have in mind.
I am not an analyst but thanks to the wealth of resources available on Morningstar.co.uk, I am able to carry out in-depth research into a huge range of funds. I want to spread my risk, so am side-stepping investing directly in equities as I don't want to put all my eggs in one (or a few) baskets. As--fingers crossed--I'm only around a third of the way through my life, I have a long time horizon and can afford to take on a little risk, so I don't feel that I need to worry about investing in bonds just yet. I've settled on investing solely in equities at this stage in my investing career but I also want to diversify away from sterling to reduce my portfolio's reliance on any one economy. I've therefore decided to go for a global equity fund for the Stocks & Shares portion of my ISA, which in the 2010-2011 tax year can total £5,100 (or the full £10,200 allowance if I wasn't planning on also putting money into a Cash ISA).
Using Morningstar's ISA Fund QuickRank, I was able to search for funds that fall into the Global Large-Cap Blend Equity category and are also eligible to be placed in an ISA wrapper. To narrow down the list of funds that met my criteria, I ranked the search results by Morningstar Qualitative Rating and came up with a shortlist of funds rated Superior by our analysts. I read the analyst reports to help finalise my decision and came up with a handful that I felt could be the right choice for my ISA investment. Among them was Fidelity Global Special Situations, which my colleague Tom Whitelaw selected for his own ISA, but having read the analyst report I felt that this fund was a touch too high risk for my liking. First State Global Growth looked to be more in line with my preferences but with a total expense ratio of 1.94% I wondered if I could get the same performance and expertise at a lower cost. M&G Global Growth seems to perfectly fit the bill. Its total expense ratio of 1.69% is 26 basis points cheaper than First State's offering and its initial investment of £500 and monthly subscription minimum of just £10 will give me a lot of leeway should I find that I come into any financial difficulty later in the year.
In order to take advantage of pound-cost averaging and to inject some discipline into my investing pattern, I will invest £800 in M&G Global Growth initally, followed thereafter by monthly installments of £400, which will not only ensure I use my full allowance by fiscal year end but also that I won't fall into the trap of making emotional investment decisions based on short-term market fluctuations.
I will also be paying any spare funds I have into a cash ISA as I want to save for my first motorcycle and even with interest rates at record lows at present, I feel that this is the safest way to do so without being tempted to spend my cash (as I might if it was sitting in my bank account).
Holly Cook is a private investor writing about her own ISA portfolio. The views expressed in this article are those of the individual, and not of Morningstar, and should not in any way be construed as financial advice.
