Martin Lawrence, director of investments at Wesleyan Assurance Society, shares his views on maximising the potential of ISAs.
ISAs are a tax-free savings staple and a mainstay of many balanced personal investment portfolios.
We all know the value of setting savings aside, especially when it takes advantage of tax[1]efficient growth, but we can still do more to explain the benefits of ISA products to clients – which is particularly critical in the current low-interest rate environment.
Beating inflation
For those clients with savings languishing in basic savings accounts, or even low-interest cash ISAs, the reality is that rising inflation is eating into the spending power of those savings. Over time, that money is simply worth less. Worryingly, our recent research found that around one in six people (17%) don’t think that inflation will affect them* – despite clear evidence to the contrary.
Encouraging clients to consider more complex ISA products, such as stocks and shares ISAs, is one way to help combat spending power attrition.
Market Matters
Money that tracks stock markets typically performs better over time than money kept in basic savings accounts. The potential for greater growth can counter high inflation and its impact on spending power.
But in an environment of high inflation, low interest rates, and market volatility, where should clients consider investing this year’s ISA allowance? With Profits is one possible answer. At Wesleyan, our With Profits Growth Fund Series A aims to provide capital growth over a medium-to-long term period by investing in UK and International shares, fixed interest stocks, property, cash and other related investments. The fund aims to avoid sharp rises and falls by ‘smoothing’ investment returns over the period of the plan.
With Profits products aim to tackle the twin challenge of high inflation and low interest rates by being a long-term investment vehicle. It also has the advantage of providing a ‘smoothed’ investment return for investors by taking a middle course through the peaks and troughs of market movements.
‘Smoothing’ works by holding back some investment gains from high-performing periods and paying them out during less profitable times – balancing the ups and downs of the market for clients without hampering the growth potential of the investment.
£10,000 invested in Wesleyan’s With Profits Growth Fund Series A 10 years ago would now have grown to around £20,780**, showing strong performance despite market volatility around events such as Brexit.
Past performance is not a reliable guide to future performance and the value of investments and any income can go down as well as up. Investors may get back less than they invest.
How and when?
Of course, knowing when and how to invest are equally important.
For those clients who have surplus money sat in savings, immediately locking away a lump sum in an ISA may be their preference. However, making regular monthly contributions can prove to be beneficial, and it’s a particularly useful approach to give extra protection from any ‘steep and sudden’ market dips, the likes of which we have seen this year.
One thing is for sure: stocks and shares ISAs offer the potential for impressive returns over time. As such, they should remain a firm feature in clients’ diversified portfolios. Making the most of the ISA allowance will be important for almost all clients in the months and years to come. Taking time now to work with those clients, to reassess how they are using the tax-wrapper, and not waiting until the tax-year end, should bring many advantages.
For more information about the Wesleyan With Profits Growth Fund Series A: please contact intermediaries@wesleyan.co.uk or click here.
Notes:
* Source: Wesleyan Inflation Survey conducted by 3Gem between 1st and 4th February 2022
** Source: Wesleyan With Profits Growth Fund Series A; dated 30th June 2022. Returns correct as of 1st July 2022
Wesleyan Assurance Society ‘WESLEYAN’ is a trading name of the Wesleyan Group of companies. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145).
Registered Office: Colmore Circus, Birmingham, B4 6AR. Telephone: 0345 351 2352. Fax: 0121 200 2971. Calls may be recorded to help us provide, monitor and improve our services to you.
About Martin Lawrence
Martin joined Wesleyan in 1995 as an Investment Analyst. He became a Fund Manager in 2001, and for 20 years, he managed several Wesleyan funds, including the With Profits Fund until December 2020. Now, as Director of Investments, Martin is responsible for overseeing the management of all Wesleyan funds and in-house Investments department, which includes the Fund and Property Managers, Analysts, and SRI team. He is also a Director of Wesleyan Unit Trust Managers Ltd
