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It is a good idea to regularly review and, if necessary, update one’s investment strategy. The problem for many is that finding new ways to spend money in an Individual Savings Account (ISA) takes time and effort.
However, it should not be a difficult task. And if done successfully, the rewards can be great.
As the New Year rolls around, many UK savers and investors are looking for new ways to boost their ISAs. Here are two that I think deserve serious consideration right now.
1. Focus on stocks
I am one of the many people who have both a Cash ISA and a Stocks and Shares ISA. But the amount of money invested in the end is very less than what I have in the beginning.
Cash accounts are a great way to manage risk. But the better returns on offer mean prioritizing a Stocks and Shares ISA may be a good idea for those with a high risk tolerance.
Recent interest rate cuts mean the most affordable Cash ISA rate is now under 5%. In comparison, the long-term rate of return on FTSE 100 again S&P 500 estimated at 7% and 11% respectively.
Benefits from Cash ISAs could continue to fall, too, as the Bank of England adjusts its monetary policy to respond to lower inflation.
Let me show you the difference this can make to a person’s long-term wealth. A £500 monthly investment in a Cash ISA yielding 4% can be turned over £257,065 after 25 years.
Now let’s split that investment 80/20, with £100 put into that Cash ISA and £400 into the Stocks and Shares ISA. If that person can get an average annual return of 9% on their stock investment, they can end up with it £499,862 for both ISAs, excluding broker fees.
Past performance is no guarantee of future returns. But I am optimistic that stock markets can continue their impressive long-term rise.
2. Expand your horizons
Major UK and US stocks dominate the Stocks and Shares portfolios of ISA Investors. Popularity of Lloyds, Nvidia, Rolls-Royceagain Tesla all the features are great.
Those looking to maximize their investment returns, however, may want to look ahead to emerging markets for other stocks and funds.
I Franklin FTSE India ETF (LSE:FLXI) is one fund I am considering for my portfolio. This exchange-traded fund (ETF) has allocations in 244 large and mid-cap Indian stocks, a quality that helps investors spread risk.
Since the beginning of 2020, this fund has delivered an annual return of 11.4%. That’s less than the 14% an ETF focused on the S&P 500 would have offered around that time.
However, I believe that the returns here could be much higher going forward, driven by India’s economic growth, significant overseas investment, and ongoing government reforms.
The IMF estimates that Asia’s second largest economy will grow by 6.5% this year alone. That’s significantly higher than the 2.2% and 1.5% predicted in the US and UK.
Wide selection of stocks – from HDFC Bank again Hindustan Unilever to Tata Motors – offers investors in this Franklin Templeton fund multiple ways to capitalize on economic growth.
While currency volatility may affect future returns, I still think emerging market ETFs like this one have the potential to deliver outstanding returns for investors.
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