The Blog
The British ISA: Igniting Interest in the UK Market
By Sarah Penney
ISAs are nifty financial tools, a go-to for both savers and investors.
But, have you heard about the latest addition to the ISA family? In the Spring Budget, the government announced the introduction of the British ISA – check out our dedicated blog, by our Education Ambassador, Joseph Vambe, for the full details.
Essentially, an Individual Savings Account (ISA) acts as a shelter for your money, allowing it to grow without deductions from income or capital gains tax. Introduced back in 1999, ISAs have evolved over the years, becoming a cornerstone of personal finance for many UK citizens. Brits have stashed away over £750 billion through ISAs since their inception.
With the British ISA, if you’re fortunate enough to have maxed out your £20,000 tax-free allowance, available through all ISAs, then you’ll have the opportunity to invest an additional £5,000 completely tax-free. This extra money will have to be invested in UK companies.
Realistically, this new ISA caters more to the affluent folks, however, the announcement has sparked conversations about the power of individual investors to bolster the UK economy and it’s got us all thinking about backing our home-grown businesses.
Investing in UK business
So, should we be getting excited about investing in the UK economy?
We’re already a pretty patriotic lot, UK retail investors currently allocate roughly 50% of their ISA investments to UK companies. But is now the right time to jump on the UK market bandwagon? According to Laith Khalaf, head of investment analysis at AJ Bell, while the UK stock market may not be climbing to new heights right now, there are silver linings.
UK stocks are trading at relatively cheap prices, meaning that if you’re in it for the long haul, now might just be a good time to get your hands on some UK stocks. Plus, if you’re interested in generating income from your investments, UK companies are pretty good at paying dividends to investors.
Khalaf lays out three distinct investment strategies for those eyeing the UK market:
- Passive: Invest in line with global stock market benchmarks, which means around 4 per cent of your portfolio would be invested in UK stocks.
- Active: Manage your regional allocation, for example, starting by investing 20 per cent in each of the UK, US, Europe, Japan and Emerging Markets, then adjusting depending on your confidence in each market.
- Patriotic: Put everything in the UK market, aligning your fortunes with its performance.
A little note from us – a savvy investor will recognise that the patriotic approach lacks diversification, and means you’ll lose out on potentially higher returns in the global markets.
How to make investments in UK companies
Interested in contributing to the home economy and taking a punt on the UK market? How do you go about it?
The most popular avenue is via investment platforms, acting as gateways to a vast array of investment opportunities, including stocks, bonds, mutual funds, ETFs, and more.
Once you’ve chosen your platform (do some research, fees and offerings vary quite a bit), you’ll need to decide on your investment strategy.
You can opt for mutual funds or ETFs, which allow you to invest in multiple UK companies at once, whether that’s the FTSE 100, FTSE 250, or companies in a specific sector – the options are plenty. Or, you can pick companies you like the look of and invest in them directly.
The general recommendation is to spread your money out – think about diversifying across a number of different types of investment. It’s advisable to have some geographic diversification in your portfolio too, having too much money in the UK market might mean you miss out on returns available in the rest of the world.
Essentially, as your Grandmother used to say, don’t put all your eggs in one basket!
Conclusion
The UK market has some interesting opportunities to explore, and we as retail investors have great power to bolster the UK economy. We’re glad the launch of the British ISA has reinforced this point and encouraged us to think about investing in home-grown business.
We encourage young investors to explore the opportunities presented by British business and highlight that by adopting a long-term investment approach, staying informed, and maintaining a diversified portfolio, you’ll be well-equipped to navigate the choppy waters of the financial markets!
Keep your eyes peeled for more updates on the British ISA, we’ll keep you posted on the latest developments. The TEA team is committed to advocating for young investors and we’ll be contributing to the government consultation on this exciting new product. Watch this space!
Join TEA! Let's shape the financial inclusion agenda together by facilitating inclusive investor engagement. Sign up now for FREE!
Join us
Sign up to our newsletter to stay up to date