What's the point of ISAs?

lisyloo

only the current balance will remain on the current scheme rate

Some of us have flexible offset arrangements and can drawdown to a pre-agreed limit, so some of us can withdraw more cash than we need.

Gordon_the_Moron

noh wrote: »

Generally true but an exception is the Monmouthshire BS flexible saver currently paying 4% on a maximum of £1000 a month.
http://www.monbs.com/flexible-saver-issue-2/

After tax this doesn't beat the best ISAs (nor does it beat the best fixed ISAs or Nationwide Flexclusive ISA before tax!)

jimjames

Tight_as_a_Drum wrote: »

How is that even possible??

Easy - just invest in the right funds and keep the money reinvested in there growing. Its the whole principle of compounding

http://www.fool.co.uk/news/investing/2010/11/01/transcript-how-to-build-a-million-pound-isa.aspx

Noviceinvestor

Wow! - thanks everybody for a very interesting chain of discussion, just logged in after a long day at work. Well, going back to the early replies about money being 'safe' in an ISA, I guess that's what bothers me about them, at least the cash ones. The rates of return available these days seem to barely keep pace with inflation, so I personally don't define that as a 'safe' place to put my money. In a contrary sort of way I'd feel safer to take a bit of a risk and get a better return. In answer to those who asked me for examples (quite right, I need to put my money where my mouth is), one of those I'm considering is a Brazilian social housing scheme - government-backed - where you can put £22k for a year and get 20% return. For smaller amounts, I've used offset successfully (as others have said) plus there's the FirstDirect 8% savings account - discussed elsewhere on this board. Not to mention alternative investments in hotel rooms, fine wines, moviemaking.... the list goes on. But I agree, it does depend on one's circumstances and risk tolerance.

In summary, nothing feels safe these days - even high street banks - so I'm feeling inclined to get a bit more creative. :cool:

Aegis

Noviceinvestor wrote: »

Wow! - thanks everybody for a very interesting chain of discussion, just logged in after a long day at work. Well, going back to the early replies about money being 'safe' in an ISA, I guess that's what bothers me about them, at least the cash ones. The rates of return available these days seem to barely keep pace with inflation, so I personally don't define that as a 'safe' place to put my money. In a contrary sort of way I'd feel safer to take a bit of a risk and get a better return. In answer to those who asked me for examples (quite right, I need to put my money where my mouth is), one of those I'm considering is a Brazilian social housing scheme - government-backed - where you can put £22k for a year and get 20% return. For smaller amounts, I've used offset successfully (as others have said) plus there's the FirstDirect 8% savings account - discussed elsewhere on this board. Not to mention alternative investments in hotel rooms, fine wines, moviemaking.... the list goes on. But I agree, it does depend on one's circumstances and risk tolerance.

In summary, nothing feels safe these days - even high street banks - so I'm feeling inclined to get a bit more creative. :cool:

(emphasis mine)

The risk you're looking to take is more or less off the scale. Jumping straight from cash into something as specific as that is probably not the best move when starting out in the world of investing.

Basically, if something is offering you a potential 20% increase in one year, there has to be a tremendous amount of risk associated with that investment, which could well see you earning negative returns and needing to go a long way just to catch back up with the boring ISAs.

Honestly, you're better off building up a reasonable core of shares and/or funds in boring companies before you start investing into high risk ventures like the one you've described in your post.

Noviceinvestor

Thanks Aegis. I guess it must have sounded a little mad. But I've spent a year doing university study on Brazil, specifically as background to potential investment - so I've done a bit of homework. Currently investing in Argentina also, and have picked up a lot of experience doing that...

Aegis

Noviceinvestor wrote: »

Thanks Aegis. I guess it must have sounded a little mad. But I've spent a year doing university study on Brazil, specifically as background to potential investment - so I've done a bit of homework. Currently investing in Argentina also, and have picked up a lot of experience doing that...

Just be very careful. You'll get no consumer protection or other such safeguards if you choose to invest in such niche areas, and you are very likely to lose a lot of money at some point if you continuously pick that sort of investment. It might be offset by gains elsewhere, but there's no guarantee of that at all.

Noviceinvestor

Thanks for that. Don't worry, most of what I invest is in safer places (property) - this is just the high-risk end of things. I never invest more than I'm prepared to lose in high risk, and I always do thorough homework and due diligence first. The Brazilian investment has been going for well over a year now, and highly-regarded UK companies are selling it. Haven't yet decided definitely to invest in it. It's called 'minha casa minha vida' by the way, and is a brilliant housing scheme to better the lives of Brazilians who have a job and can afford their first home.

lisyloo

I guess that's what bothers me about them, at least the cash ones. The rates of return available these days seem to barely keep pace with inflation, so I personally don't define that as a 'safe' place to put my money. In a contrary sort of way I'd feel safer to take a bit of a risk and get a better return.

Ok, well that's easy then.
You can use the whole allowance on stocks & shares ISAs.

quite right, I need to put my money where my mouth is

It's not that at all. I was trying to understand what you are saying.
which appears to be "What's the point of CASH Isa's" which is very different to your original wording.

You are absolutely right that below inflation returns can persuade some of us into making higher risk investments at least for part of our portfoilios.
However not everyone can take the risk.
This includes elderly people who don't have a long enough life expectancy to ride out the volatility, people who need access and people who cannot risk their capital e.g. those who live off the income.

So I think you are right to a degree that some of us should be more adventuorous but it's not an option availabl to everyone and not everyone is or wants to be a sophisticated investor. I consider myself intlligent and savvy but investing, like mechanics and plumbing simply don't "float my boat" so I get someone else to do it. I realise that comes at a premium but as you get older you'll understand the value of spending your finite lifetime doing things you like rather than those you don't like.

So to a degree I agree with you, but not everyone is in the same position.
Many pensioners could not take on the risks you are proposing, so ISAs have a vey useful and valued place in many people's portfolio.
Personally I have a balanced portfolio which does include maximising cash ISAs each year. They might not be beating inflation but the capital is safe and they are accessible so they do meet some needs. I also have some stocks and shares which hopefully will give better returns but they have been quite volatile recently and I couldn't afford to take losses on ALL my assets, so I only risk some.
Also it won't always be that way i.e.normally you'd expect savings rates to beat inflation. The financial crisis is an exception.

It might help you if you are little clearer on what you means by "safe" and risk. There are generally 3 types of risk.
1) Capital risk i.e. inital investment goes down.
2) Inflation risk i.e. returns do not beat inflation hence investment goes down in real terms.
3) Shortfall risk i.e. returns are not high enough to meet goals.

When you say "safe" most people this of capital safety, but you are right there is inflation and shortfall risk too.

jimjames

lisyloo wrote: »

It might help you if you are little clearer on what you means by "safe" and risk. There are generally 3 types of risk.
1) Capital risk i.e. inital investment goes down.
2) Inflation risk i.e. returns do not beat inflation hence investment goes down in real terms.
3) Shortfall risk i.e. returns are not high enough to meet goals.

When you say "safe" most people this of capital safety, but you are right there is inflation and shortfall risk too.

In the case of Brazilian investment you'd also need to add currency risk and the potential for fraud if local regulation/corporate governance is not up to standard. Also bear in mind that the return may be 20% but if inflation there is also 20% then actual return you get will not be very good.