As the 2009-2010 tax year draws to a close and investors scramble to top up their ISA investments, we're taking a look at what Morningstar fund analysts are doing with their own ISAs. For more information on what an ISA is and how to take advantage of tax-efficient investing, watch this video. Our ISA page also has plenty of case studies and additional articles on investing in ISA-eligible vehicles and managing an ISA portfolio, while a quick search of our article archive will produce a list of relevant ISA investing articles.
Nitya Pandalai Nayar, Morningstar UK Fund Analyst:
As someone who only graduated a couple of years ago, my financial stability is quite precarious right now, with student loans still hanging like a noose around my neck. This early in my career, I’m living month to month and there is very little spare capacity for saving. Yet through my daily work as a fund analyst I’m aware that this is also the best possible time for me to begin saving, be it for a mortgage, travel, or a new car, as I am constantly reminded of the benefits of compounding returns. Although there are demands on my income, it’s simply a matter of discipline in setting up a regular savings scheme. The ISA allowance is more than sufficient for my savings capacity and, even if I can’t invest the full amount, I figure that something is better than nothing!
Given how little I have spare each month, fees form a major role in my choice of funds. With such limited resources, I don’t want to pay high management fees—I want my money to work for me—so I’ve opted for an exchange-traded fund and have set up a monthly savings plan for this tax year. I have chosen an ETF from iShares, because they are cheap: the TER is around 70 basis points. There are index trackers that are cheaper, such as from Vanguard, but they are not available through my bank, Barclays, and I have decided to open my ISA account with them as they offer a deal whereby the fees will be even lower for a fixed period of time. This is something that appealed instantly, particularly as I would need to raise a minimum investment of £100,000 if I wanted to invest directly in the lower-fee Vanguard fund.
As a young investor, I am prepared to take some risks with my portfolio and can afford to take a very long time horizon as this is undoubtedly the best time in my life for me to do this. I have opted for an emerging-markets ETF, on this basis. For the time being, at least, my aim is to generate returns higher than the interest repayments on my student loan in a bid to clear down the debt. Only then will I be able to broaden my portfolio across asset classes, as I’ll have more free cash to invest.
I have also subscribed to a cash ISA as I want the comfort of some ‘rainy day’ money that is easily accessible and it makes sense to put this in a tax-free environment too; any interest earned won’t be liable to income tax and, although interest rates are low, it still seems the logical thing to do.
Nitya Pandalai Nayar 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.
