Will existing ISA's become NISA's

Archi_Bald

jimjames wrote: »

I think the press are as guilty as anyone and I guess most journalists have no idea about S&S ISAs either. More shocking to me are the annual articles that appear about the "best ISAs" that go through all the pathetic rates on offer yet only in the final footnote mention that current accounts or savings account actually pay higher interest.

The latest Which? report (which I just happened to flick through at the dentist) is a great example of that. They do mention S&S ISAs somewhere but do make it sound like something you really don't want to get your fingers dirty with. Pretty shocking for a magazine that many people trust.

dunstonh

I'm really risk averse, so I've always saved the cash element of the ISA, not the shares part.

That doesn't avoid risk. it just changes the risks. You don't have investment risk but you take on inflation risk and shortfall risk instead. In longer term planning, those risks can be greater than appropriate investment risk.

pip895

xylophone wrote: »

I am acquainted with a very elderly person whose ISA allowance in S&S is always used because of the tax advantages for income.

I know quite a few in that position! I think the cash side is mainly useful for people saving for a deposit.


Personally I have never in my life invested in a cash isa - if you can get an average of 8%/anum from S&S Isa why would you bother with cash - especially at current rates.

dunstonh

Oh by the way, after July 2014, cash accounts within S&S ISAs will become tax free and not taxable as they currently are. A nice little gain for S&S ISAs using platforms.

badger09

dunstonh wrote: »

That doesn't avoid risk. it just changes the risks. You don't have investment risk but you take on inflation risk and shortfall risk instead. In longer term planning, those risks can be greater than appropriate investment risk.

So true.

However, many people have a very narrow understanding of investment, and many equate it simply with the FTSE100 . Whereas most people understand the concept of saving in cash but don't appreciate the devastating effect of inflation over the long term on cash savings.

Joe public has heard lots of horror stories about disastrous forays into 'the stock market' (which often actually means gambling on individual company shares, or chasing the latest fad) and will have seen several stock market crashes.

It is far more comforting for Joe to see his modest savings sitting safely in a cash ISA and growing at a nice steady rate each year. Unfortunately what Joe fails to notice, is that to have the same buying power of £100 as he had in 1982, he needs about £300 today :eek: and his cash won't grow that much!

The sheer number of investment products and providers is enough to deter all but the most determined novice investor from even exploring their options. This forum is a great source of information but no substitute for a broad basic financial education .

jj1981dd

badger09 wrote: »

So true.
Joe public has heard lots of horror stories about disastrous forays into 'the stock market' (which often actually means gambling on individual company shares, or chasing the latest fad) and will have seen several stock market crashes.

In order to be successful in the stock market you need to do one of three things:

1) buy during/after the crashes when everyone else is selling.

OR

2) the even easier method is to simply buy defensive income paying stocks and hold for the long term and ride out the crashes.

OR

3) both of the above

jimjames

badger09 wrote: »

Joe public has heard lots of horror stories about disastrous forays into 'the stock market' (which often actually means gambling on individual company shares, or chasing the latest fad) and will have seen several stock market crashes.

I think another part of the problem is the media - there is always a focus on "the FTSE lost 2% today" and very little of "the FTSE gained 25% in the last year" as it doesn't make such a good headline. The net result is that the average person hears about all the falls and bad news not the positive side.

xylophone wrote: »

I am acquainted with a very elderly person whose ISA allowance in S&S is always used because of the tax advantages for income.

That makes sense. I've always wondered about the comments that old people shouldn't invest in shares because they don't have the luxury of time.

Why? Surely for most pensioners if they aren't using the cash to draw from the important thing is having the maximum income. To put it bluntly why would they care if the stock market drops and is still down when they die - they won't need to worry. In the meantime they've had that enhanced income to live from.

jj1981dd wrote: »

In order to be successful in the stock market you need to do one of three things:

I don't think you HAVE to do that to be successful. Long term buy and hold of a selection of trackers would also suffice or a global index tracker such as VLS but held long term.

lisyloo

if you can get an average of 8%/anum from S&S Isa why would you bother with cash

For money you don't want to gamble with (for me that's paying the mortgage).
For emergency fund money you might need in an emergency.
For money you are intending to spend short term.

Anything else I agree.

WarriorPrincess

Thanks for your answers everyone. I'm interested by the almost universal condemnation of cash ISAs here 'except in special situaitons'. I've used the cash ISA allowance regularly over the years and have a considerable sum earning 3.7%, and some earning 4.1% - all tax free. As I understand it, that's a rate comfortably ahead of inflation, with no risk at all. By contrast, the endowment mortgage & pension plan I took out many moons ago were serious mistakes and rather put me off 'financial advisors'. I'm happy to stick with what's worked & do more of it, so when there's an opportunity to shelter more savings in a tax-free cash ISA I'm interested even while the rates currently available are low.

Porcupine

Something to add to the debate. The HMRC guidance notes say:

"From 1 July 2014, the qualifying requirements for investments in a Stocks and Shares NISA, which provide that certain investments:

- are subject to the 5 per cent ‘cash-like’ test, or
- must have at least 5 years to run to maturity at the time they are first held in an ISA

will be removed"

The '5% cash-like test' is a criteria that any investment must have a risk of falling 5% within 5 years.

So this means there may be more lower-risk products available in S&S ISAs in future.

An example of this is that Guaranteed Equity Bonds often have a clause in them to say something like 'if the FTSE100 falls more than 50% you may lose money' - I suspect this is added just to meet the 5% test rather than a necessity of the underlying investments.

Short-dated bonds are another one. Or money-market funds.