Savers dump cash Isas and pile into stocks and shares – see what they’re buying | Personal Finance | Finance
Just one in six higher earners are taking out tax-free cash Isas this year, while a quarter favour stocks and shares Isas instead, new research from platform InvestEngine shows. Nearly nine in 10 believe investing will offer superior returns to cash over the longer run, and the gap will widen once inflation falls and the Bank of England starts cutting interest rates.
Andrew Prosser, head of investments at InvestEngine, said: “Many expect stocks and shares to be the best route to growing wealth in the long-term.”
As part of the annual Isa allowance, every adult can invest up to £20,000 in a cash Isa or stocks and shares Isa, or a combination of the two.
All the interest on a cash Isa is free of tax, as are all the capital growth and dividends on stocks and shares.
Investors have started the year in an optimistic mood, said Emma Wall, head of investment analysis and research at fund platform Hargreaves Lansdown.
Many understandably favour technology funds after the runaway success of the so-called Magnificent Seven US mega-caps: Alphabet, Apple, Amazon, Microsoft, Meta Platforms, Nvidia and Tesla.
The US stock market is breaking new highs and Wall said Hargreaves Lansdown clients are playing the trend by investing in tech-focused investment funds Blue Whale Growth, which is up 25.1 percent over the last year, and Liontrust Global Technology, which is up a staggering 47.8 percent over 12 months.
Investment fund Jupiter India highly popular as the country’s stock market booms.
Fidelity Global Dividend, which invests in income-paying stocks from around the world, is highly popular. It has delivered a total return of 6.3 percent over the last 12 months and 51.3 percent over five years.
Artemis Income, which invests mostly in UK companies but with some international exposure, is also in demand. It’s returned just 1.4 percent over one year but 33.9 percent over five.
The UK’s FTSE 100 ended 2023 strongly but fell in January and is down 2.41 percent over the last 12 months.
Investors are shunning UK funds as a result but Wall said: “Contrarian investors should consider this a great opportunity to buy at depressed prices.”
Interactive Investor’s deputy collective editor Kyle Caldwell said investors on its platform are also targeting US tech firms, but using a different vehicle.
L&G Global Technology Index is their fund of choice. Its five largest holdings are culled from the Magnificent Seven: Apple, Microsoft, Nvidia, Alphabet and Meta.
Other top 10 holdings include the Taiwan Semiconductor Corporation, ASML and Adobe. The fund is up 42.99 percent in the year to February 6.
However, Caldwell warned: “Investors who buy this passive index-tracking fund need to be comfortable with the fact that its top two holdings, Apple and Microsoft, make up roughly a third of the total fund.”
There are concerns that after a stellar 2023, US technology stocks look expensive and could fall in value at some point.
Not everybody is willing to invest in the stock market, which may provide superior long-term returns but is more volatile in the short run.
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Interactive Investor clients are keen on Royal London Short Term Money Market, a low-risk fund that aims to offer a high yield but with relatively low risk. It currently pays income of 4.96 percent a year, and can be bought inside a stocks and shares Isa.
There is good news for those who don’t want to take a risk on shares, with cash Isa rates up sharply over the last year.
The average easy access account now pays 3.30 percent against a rate of 1.85 percent in February 2023, according to Moneyfacts.
The average one-year fixed rate cash Isa now pays 4.51 percent, up from 3.41 percent.
Among best buy cash Isas, Leeds Building Society pays 5 percent with instant access. Shawbrook Bank offers a one year fixed-rate bond paying 4.98 percent, while United Trust Bank pays a fixed rate 4 percent for five years.
