It’s always nice to peek in on the investment strategies of others, to glean new ideas and challenge your current assumptions about money, investing and saving. To feed your curiousity, we at Morningstar have enlisted the help of an employee from the investment consulting division in our London office. We will call him Don to protect his privacy. Here are Don’s personal details and information about his investing and saving strategies:
Don's Personal Profile:
Male
Single
36 years old
Has been living and working in the UK for the last six years
Don's History of Investing and Saving:
Don came to the UK on a working holiday visa six years ago and did not save or invest in his first year living in London. After one year, Don began saving within a cash ISA, but withdrew his money shortly thereafter to pay for various unexpected expenses. However, for the time that his money was accruing interest within his ISA, he was happy to be generating tax-free income. “More money for me, less money for Gordon Brown,” he said.
Don's Current Status with his Investing and Saving:
After two years of living in London, Don opened a stocks and shares ISA with Super ISA Provider (not the provider’s real name) and has been saving money into this account ever since. Apart from his company pension, all his money is invested within this stocks and shares ISA because he is relatively young and likes to invest. He believes sitting on cash for too long and accruing just a small amount of interest in a cash ISA is not a good idea for him. “Returns on most cash ISAs are not worth the effort,” he says.
He is happy to be aggressive in his investment strategy and take on more risks. He is generally invested in individual companies and a few funds that he thinks will perform well in the future and generate income.
Currently, Don is slightly concerned that the market has gone too far, too fast, and he is expecting a pullback in the market. Therefore, he has been selling many of his investments and leaving the cash within his stocks and shares ISA as he waits for future investment opportunities. However, he is still holding onto some investments such as Rio Tinto (RIO), Xstrata (XTA) and British Sky Broadcasting Group (BSY), which he considers to be a bit “racy” and higher risk compared to other assets. He would like to buy Vodafone (VOD) in the future because the company offers a sizeable dividend. He is also considering investing in funds focused on Japan because he believes the Japanese market is generally undervalued right now.
For the 2011-2012 tax year, Don topped up his ISA to the limit (£10,680). He did this by taking investments that were outside his ISA and putting them inside his ISA to benefit from tax-free investing. This strategy is called the ‘Bed & ISA’ strategy, outlined in the article "You Don’t Need New Money to Tap Into ISA Benefits."
After a few years of investing with Super ISA Provider, Don is now looking to move to a new ISA provider. He is considering opening an account with Fantastic ISA Provider (not the provider’s real name) and consolidating all his investments there. However, there are switching costs involved. Don would have to pay a fee to his first ISA provider for every batch of shares he transfers to the new ISA provider. Don does not want to incur these charges. Therefore, for the 2012-2013 tax year, he plans to open and contribute to a new stocks and shares ISA with Fantastic ISA Provider, while keeping his other ISA at Super ISA Provider on the side.
Don is very happy with investing in ISAs because, “It’s such a good way--from a tax-efficient perspective--to save money,” he says. He also likes that, unlike a pension, he can access his money in the near-term in case of an emergency.
This article refers to one individual's personal investing plan and should not be construed as financial advice.
For more information about investing in ISAs for the new 2012-2013 tax year, read "Your 2012-2013 Guide to ISA Investing".
