Originally published at: WATCH – ISA lessons from our Head of Investments – InvestEngine blog
As the tax year draws to a close, our Head of Investments, Andrew Prosser, joined financial expert and author Peter Komolafe to talk all things investing in 2023. You can watch the full discussion between the two above, in which they cover the benefits of an ISA as a tax wrapper, as well as what investors can do to make their investing easier and more effective.
Here are some of the key takeaways from the discussion:
- Take advantage of the ISA’s tax efficiency. Each tax year, investors can put up to £20,000 into an ISA and pay absolutely nothing on the returns. “Both the income and the capital gains from your investments, they’re entirely tax free,” Andrew explains. “It’s a really tax efficient way to invest for the long-term.”
- Keep costs as low as possible. It might not be immediately obvious quite the difference fees can make to how much of their returns an investor gets to keep. “One of my favourite stats on how fees can drag on a portfolio imagines that an investor switches from a portfolio costing 2% into one costing 0.25%,” Andrew says. “They both have the same returns before fees so, after fees, the result is a 96% larger portfolio after 40 years for the one with lower fees. That’s just an incredible statistic.”
- Avoid over-trading. At InvestEngine, we believe the best investment strategies are built for the long-term. “It’s actually the total opposite to lots of brokers who make money based on how much you trade,” Andrew explains. “We don’t engage in behaviour like performance chasing, where you just simply buy whatever’s got the most in the last three years – which is a surprisingly common strategy. Nor do we invest based on whatever story is the most convincing, because again, that’s a really easy way to invest. We don’t believe that we have a crystal ball and take really aggressive positions based on what we think is going to happen over the short term, because nobody can do that.”
- Take advantage of automation. Not everyone has the time or inclination to spend hours monitoring their investments or making contributions every few weeks. With modern platforms like InvestEngine, the legwork is done for you. “All the investor needs to do is select how often and how much they want to invest,” Andrew says. “The software does all the rest. There’s no admin, it’s just completely automated, which is a really powerful way to help investors kind of invest over the long term and build strong robust portfolios.”