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Individual savings accounts (Isas) give every UK adult the chance to save up to £20,000 each tax year and take all returns free of income tax and capital gains tax (CGT).
Isa are more valuable than ever as Hunt launches one tax raid after another. He has frozen income tax thresholds until 2028 and is punishing non-Isa savers by slashing both the CGT allowance and dividend allowance.
Yet any money tucked into an Isa is safe from HMRC’s clutches for life.
Brits love their Isas. A staggering 27million adults hold Isas worth £687billion, with the average holding £25,444.
Two thirds play safe by taking out a cash Isa. The alternative is riskier but more rewarding over the longer run, known as the stocks and shares Isa.
Last year was bumpy for stock markets but now could be a better time to invest as there are signs of a recovery, with the UK’s FTSE 100 recently hitting an all-time high of 8,000. As ever with stocks and shares, there are no guarantees.
If you accept the added risks, setting up a stocks and shares Isa is relatively straightforward through an online platform such as AJ Bell, Bestinvest, Chelsea Financial Services, Hargreaves Lansdown, Interactive Investor and others.
These give you access to hundreds of UK and international stocks, and thousands of investment funds covering every market in the world.
This is where things get a complicated. Where do you start?
Buying individual company stocks such as BP, Lloyds, Tesco, Unilever or Vodafone is risky as your fortunes are invested in a handful of companies.
An easier and safer choice is to buy a collective investment fund that invests in scores of stocks across the UK, as well as overseas indices such as the US, Europe, China and emerging markets.
You can also invest in specialist sectors such as technology, energy, healthcare and smaller companies.
The simplest option is to buy an international fund that gives you exposure to thousands of companies around the world.
Fidelity Index World, Vanguard FTSE All World ETF, Alliance Trust and F&C Investment Trust are all best sellers, AJ Bell figures show.
You could balance this by investing a small amount of money in a lower-risk bond fund, such as Janus Henderson Strategic Bond and TwentyFour Absolute Return Credit, recommended by Bestinvest.
Alternatively, the Vanguard LifeStrategy range of low-cost index-tracking exchange traded funds (ETFs) lets you invest in a spread of both shares and bonds, which you can adjust to match your attitude to risk.
So a higher-risk investor might opt for the Vanguard LifeStrategy 80 percent Equity Fund, which invests 80 percent in shares and 20 percent in bonds. The more cautious might prefer Vanguard LifeStrategy 60 percent Equity Fund, which has greater bond exposure at 40 percent.
Right now, the top two best selling funds among DIY investors on AJ Bell’s platform are Vanguard S&P 500 ETF and iShares Core FTSE 100 ETF, which passively track the performance of top stocks in the US and UK respectively.
ETFs are attractive because fees are kept to a minimum, so you keep more of your returns.
Fund manager Terry Smith’s vehicle Fundsmith Equity has a stellar track record and remains the most popular actively managed fund in the UK, despite a bumpy year.
Many pensioners favour funds from the equity income sector, which offer both income and capital growth from a portfolio of mostly UK shares.
READ MORE: Taxman seizes ‘overwhelming powers’ and can now raid your bank account
The City of London Investment Trust currently yields 4.66 percent a year, and has an impressive track record of increasing its income for the last 56 consecutive years. Merchants Investment Trust has a 40-year history of hiking dividend payouts, and now yields 4.58 percent.
Joseph Hill, senior investment analyst at Hargreaves Lansdown, tips five actively managed funds covering a spread of sectors.
“Troy Trojan aims to build your money steadily over the long run, by investing in larger stocks, as well as bonds, cash and gold.”
Hill’s next tip, Rathbone Global Opportunities, invests in innovative companies from around the world with high-growth potential.
Schroder Asian Alpha Plus gives investors exposure to fast-growing markets in China, Taiwan, India and South Korea, while Artemis Income yields 3.88 per cent a year from a portfolio of mostly UK stocks, Hill said.
His final tip is ethical fund Legal & General Future World ESG Developed Index, which shuns stocks that do social or environmental harm, such as tobacco companies and polluters.
The key is to build a balanced portfolio rather than simply chasing last year’s big winner, and never invest money you will need in the next five years, and ideally much longer.
A stocks and shares Isa should thrash cash over the longer run, but needs time to prove its worth.
Don’t put off your Isa decisions any longer. Otherwise Hunt will benefit rather than you.
