‘I want to invest in an Isa, can you give me any tips on getting started?’
This is a question that regularly crops up and we usually refer people to This is Money’s investment guides, best DIY investing platforms round-up and other useful articles.
Yet, what’s often clear is that sometimes people don’t want to do all that research.
Rightly or wrongly, they simply want a quick, straightforward route map to investing in an Isa. To that end, I decided to write this distilled article.
Caveat first. I obviously cannot give financial advice, I’m not qualified to, and nothing here is a personal recommendation. These are my thoughts on how to easily start investing in an Isa.
You don’t need to be a City whizzkid to start investing, it’s possible to do it simply and quickly
How do you want to invest?
To decide what to do, you need to ask yourself what that pot is for and how you want to invest?
Is it money that you can afford to take a long-term view on and not suddenly need in full in the next three to five years?
If the answer to that is ‘yes, I can take a long-term view’ then you could take the risk of investing. Otherwise, you may want to stick to cash because investments can go down as well as up.
The other thing to consider here is regular investing. It’s often a mistake to think in terms of lump sums, most of us save money on a monthly basis. If you are saving money each month over and above a rainy day fund of two to three months’ salary then you could start regularly investing some of this.
How involved do you want to be?
The next question is how involved do you want to be in managing that Isa?
If the answer is that you don’t want the hassle and would rather get someone else to do it, you could try one of the new online wealth management firms. You answer a few questions on your goals and attitudes to risk – and they create and manage a portfolio of investments for you.
On the other hand, if you are interested enough to get involved, then you could pick a full fat DIY investing platform that lets you choose your investments.
The degree of getting involved here ranges from using tools that pick investments for you, to choosing a selection of funds yourself. These could be funds where a manager tries to beat the market, or cheap and easy tracker funds that simply follow it.
Two of the three DIY investing platform options I picked out help you along the way with best fund lists, while the other has a low-cost index investing portfolio building tool.
Don’t just think in lump sums
The annual Isa allowance is a use it or lose it affair. The last tax year’s £15,240 allowance ran out on 5 April 2017; and a fresh one for this tax year kicked in the following day that is higher at £20,000.
Our temptation to leave things to the last minute means an awful lot of Isa money gets invested as lump sums at the end of the tax year.
A wiser plan is to invest at the start of the tax year, or spread your investments out through the year with some regular saving.
Even if you do have a lump sum to invest (or end of tax year deadline to beat) it is worth noting that if you open an Isa account with many platforms, then you can pay money in now as cash – and choose where to invest it later at your leisure.
This can allow you to spread out investing lump sums and lower your risk. Drip feeding in a big sum over a number of months can provide some security against a sudden big market fall.
Investing offers the chance of greater rewards than cash but involves more risk – and you can guarantee that your investments will not only go up, they will also fall one day
Where could you invest?
This is the crunch point in this guide. To follow through on the promise of a quick, straightforward route map to investing in an Isa, I need to deliver some choices of where to do it.
Another caveat here: This is just a small selection of the wide range of options for investors – there are lots of other good ones out there. Many of those will be better for certain elements of investing, or cheaper overall.
But the aim of this guide isn’t to explain all those options – it is to narrow them down.
But from all those options, I picked a few that are good for those that need some help investing their Isa.
DIY investing platforms
How you want to invest will influence who you choose to do it with – and there’s a lot of choice.
These three platforms all involve some element of getting involved, although it doesn’t have to be too much. I’ve road tested them all and they deliver plenty of help in getting started.
All offer best funds lists and/or ready-made portfolios.
Hargreaves Lansdown scores highly on being intuitive and easy to use. Finding and investing in funds is simple, as is setting up regular investments and checking up on what you have done. Its app is also very good. It’s not cheap, with a 0.45% annual fee but on smaller investment pots percentage charges should not be too high. Fund dealing is free.
AJ Bell is a more pared back experience but still simple to use. It has simple passive portfolios, a good best fund-finding tool and a cheaper 0.25% annual fee. Fund dealing costs £1.50.
Interactive Investor has a different charging model and costs £22.50 a quarter or £90 a year. That fee is given back in free trading credits, which you can use to pay to buy funds, shares, trusts and ETFs. The standard charge to buy or sell all those is £10, or £1 if you set up regular monthly investing. Interactive Investor is simple to use, and has good model portfolios.
A final more restrictive but simple and cheap option is Vanguard. The US giant has set up a UK investing platform but you can only buy its funds. It is cheap with a 0.15% per year fee and has no costs for buying and selling. You can use this to buy Vanguard’s simple and cheap passive funds, or its all in one LifeStrategy funds that invest in shares and bonds around the world.
Get someone to do it for you: Online wealth managers
A whole host of these services have cropped up in recent years. Given the chance, they’ll all tell you that they are the best at looking after your money and helping it to grow while protecting you against stormy times.
The true test of this will come with time and it is too early to properly evaluate their performance through both the good times and the bad.
Their approach to investing varies, from using a traditional investment team deciding where to invest, to clever algorithms that claim to spot the best opportunities for the lowest risks.
All aim to offer user-friendly sites, with risk-profiling tools that combine with your goals to deliver a portfolio, which is then managed for you.
Costs tend to be about the 1 per cent a year mark – cheap but not as cheap as a simple tracker fund or ETF through a DIY investing platform. But for that 1 per cent fee, you get someone else to do the work for you and build a properly balanced portfolio.
Another interesting option is Moneybox, which is app based and offers three simple portfolios with a neat trick available to round up your everyday spending and then choose to invest that sum.
If you are considering using one of these, then you can road test their tools without putting any money into an account – you may have to do a simple initial sign-up with an email, however.
Learn more with our free guide to investing
This whistlestop tour of how to quickly and easily invest in an Isa, does not explain everything you need to know about investing.
To learn more about the essentials of investing read our free guide How to be a successful investor.
It is an easy to understand and jargon-free 40 page PDF guide that’s short enough to be read in one sitting and you can also keep it for reference when investing.