ISA season

ISA fundamentals

ISA basics

If you are looking to top your ISA up, the deadline of 5th April is today. You only have a few hours to make the most of your yearly allowance.

In the UK, we are allowed to save £20,000 per year tax free.

If you are investing in the stock market, a stocks and shares ISA is a way to be tax efficient. Any interest you earn is free from CGT (Capital Gains Tax). And tax-free withdrawals can be made at any time.

Looking at ISAs at a high level, they are an effective tax shelter. They offer you a tax-efficient solution for helping you build and preserve long-term tax-free wealth.

Taken directly from Stephen Sutherland (How to Make Money in ISAs and SIPPs), here is a quick summary of ISA basics:

  • Individual Savings Accounts (ISAs) are tax-free savings accounts
  • There are two types of ISA; a stocks and shares ISA and a cash ISA
  • ISAs were introduced in 1999 to replace PEPs (which were a tax free way of investing in equities) and TESSAs (which were tax free deposit accounts)
  • The present annual ISA allowance is £20,000 per person (2020/21 tax year)

Your investing preference

After many years of investment mistakes, I finally realised that set and forget is the strategy that suits me (Set and forget). Long-term buy and hold.

Spend less than you earn and invest the rest. This is the mantra of any personal finance expert. This requires some serious discipline and budgeting skills.

Index investing is how I invest. I invest using a Vanguard fund within my UK ISA tax shelter.

I am not a FA (financial advisor) so I am not going to advise you what fund to invest in. This just works for me after many years of making poor financial decisions.

With set and forget, I check on my fund once every 6 months. I have done this since mid-2019. This is around the time when I finally started to get my financial act together.

My long-term buy and hold strategy are split between index funds and property.

Understanding your relationship with money will help you determine your strategy. It will help you to do some much-needed financial planning. To see how I finally got around to financial planning, you can read a copy of my 1st book – Learn the hard way, teach the easy way.

Financial planning might not be the sexiest topic in the world. But it will help you look after your older self.

What to do

In my opinion, financial literacy is well worth looking into. It will help you make educated investing decisions that will help you. It will help you provide for your retirement. And it might just get you out of the rat race earlier than expected.

Here are some books I would recommend getting you going:

  • Rich Dad, Poor Dad, by Robert Kiyosaki – this will help you from a concept point of view. A massively popular self-development book
  • How to own the world, by Andrew Craig – an excellent book aimed at UK investors
  • RESET, by David Sawyer – this is an early retirement plan for midlife careerists. Will help you on your way to financial independence
  • The Little Book of Common Sense Investing, by John Bogle – if you are interested in index investing, this book is a must read

If you believe what I have read, you will know that it is possible to earn 7-8% interest per year with index investing.

Do your own research and think about making the most of your UK ISA allowance. Don’t settle for less than 1% in the high street banks.

Book of the week: How to Make Money in ISAs and SIPPs, by Stephen Sutherland. Tax efficient investing made easy.

For a hard copy visit the excellent Imagined Things Bookshop:

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