MAKE A SMARTER ISA DECISION. LET S TALK HOW.

Transcription

1 MAKE A SMARTER ISA DECISION. LET S TALK HOW.

2 Thank you for requesting this Fidelity ISA guide. An ISA (Individual Savings Account) is one of the most effective ways to put money aside for the long term and our guide aims to answer some of the most popular questions about this tax-efficient investment option. In this guide we will explain what an ISA is, how investments differ (particularly when looking at various asset types from cash through to equities) and explain how funds work. It also introduces our guidance service and explains how this could help you make your investment decisions. Please note that Fidelity Personal Investing does not give investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser. The value of investments and any income from them can fall as well as rise, so you may not get back what you invest. Contents Why do I need an ISA? 3 Asset classes managing risk 6 Funds explained 8 How to choose funds for your ISA 10 When should I start? 11 Helping you make your investment decisions 12 2 Fidelity ISA Guide

3 Why do I need an ISA? Whatever your financial goals are, an ISA could be a great way to help you achieve them as it offers a compelling combination of easy access and long-term tax advantages. An ISA can even be a good way to support your retirement savings, as it doesn t lock your money away as pensions do. What is an ISA? You may have heard people say that they need to get an ISA, but the ISA is not actually an investment in itself. Instead, an ISA is simply an account that protects your investment returns from tax. Some people invest in order to grow their savings, some to generate an income an ISA can make a big difference either way. Under current tax rules, you do not have to pay income tax or capital gains tax (CGT) on the returns from any investments in your ISA. The value of tax savings and eligibility to invest in an ISA will depend on personal circumstances. All tax rules may change. Fidelity ISA Guide 3

4 Are the tax advantages really worth it? Only you can answer this question and it depends on your personal circumstances. However, we believe that, for many people, an ISA is one of the most generous handouts they will receive from the Chancellor. Over the years, an ISA could save you a significant amount that you would otherwise have had to pay in the form of capital gains tax or income tax. In an era where the upward pressure on tax seems to be relentless, this is doubly important. Every time taxes rise, the ISA tax break gets even more valuable. Just to give you an idea of how high taxes have become, consider this. In 2016 the first day of the calendar year that employees worked for themselves rather than HMRC was 3rd June. This is known as Tax Freedom Day*. It s calculated by measuring taxes, including stealth taxes, and National Insurance contributions as a percentage of the UK s net national income this came to 42.3%, or 154 days. *Source: Adam Smith Institute June June Tax Freedom Day 4 Fidelity ISA Guide

5 How much can I save? There is a limit on the amount you can save into your ISA each year. For the 2016/17 tax year, the maximum is 15,240 (this will increase to 20,000 in the 2017/18 tax year). You can hold your money in investments or cash, in any combination as long as you stay within the annual allowance. Please note that any allowance you don t use in one tax year can t be carried over to the next, so there s a genuine incentive to take advantage of your ISA opportunity whenever possible. The annual allowance is per person so a couple can save a total of 30,480 tax efficiently which could make a significant difference to investment returns over the years. Can I invest for my children in an ISA? You have complete freedom in how you use the money you invest in an ISA, so you could easily put the savings aside to give to your children at a later date. That said, a Junior ISA may be a better option. These offer all the tax benefits of an adult ISA and they have a yearly allowance that doesn t affect your own ISA allowance. Please visit fidelity.co.uk/jisa to find out more. Please note that in a Junior ISA the investment is locked away until the child is 18 years old. In addition, any contribution to a Junior ISA is a gift to the child and it cannot be returned to the contributor at a later date if they change their mind. Any questions? Phone our UK-based call centre on Fidelity ISA Guide 5

6 Asset classes managing risk 6 Fidelity ISA Guide

7 Your goals, your wealth and your experience as an investor are all likely to affect the amount of risk you re comfortable with investments shouldn t give you sleepless nights. Types of asset There are five main asset classes and each carries a different level of risk CASH BONDS COMMODITIES PROPERTY STOCKS AND SHARES Cash held in an ISA, deposits in a bank or building society savings account. Easy to access and low risk, but its value can be eroded by inflation. A loan to the government or a company. Normally pays a regular income until it matures. Can fluctuate in value, but usually considered lower risk than shares. Physical assets such as metals and oil. Direct investing is difficult (apart from gold) but you can invest indirectly through a fund. Considered lower risk than shares. Residential or commercial buildings. The rental income and potential rise in value means property often outperforms cash, but it can be hard to sell. A stake in a company. Higher risk than other asset classes. Values fluctuate, but historically have tended to perform better than other asset classes over the long term. Less risk More risk Balancing your portfolio An important part of managing risk in your portfolio is spreading your money across several different asset classes as they may not all do well at the same time. It s a good idea to review your portfolio periodically to make sure that it reflects your attitude to risk and is on track to meet your investment goals, adjusting your asset mix if necessary. Fidelity ISA Guide 7

8 Funds explained Investing in the markets by yourself takes a great deal of time and research. But when you invest in funds, you can leave the hard work to the experts. How funds work Your money is pooled with that of other investors and is invested on your behalf across different asset classes, generally equities and bonds. Some funds include other investments, for example property or commodities. Funds offer a number of benefits not readily available if you build your own portfolio of individual assets: Expert management The fund manager decides on the strategy and uses their judgement and experience to decide where to invest and when to buy or sell different assets, according to the aims of the fund. They are supported by a team of analysts who research companies, markets and sectors. Lower cost investing Creating a well-diversified portfolio from individual stocks and shares can require a considerable amount of cash. By investing in a fund you may benefit from instant diversification and asset allocation for a much smaller financial stake. Pooled power Your fund manager may be able to put your money into investments that you wouldn t be able to access as an independent investor. What s more, because of the amount of money invested, you ll also enjoy the buying power of a larger investor. Easy diversification Funds are a simple way to diversify. With a fund, your money can be invested in different asset classes, companies, sectors and geographic regions. Having this broad mix of assets helps to spread your investment risk. 8 Fidelity ISA Guide

9 Active vs passive fund management There are two main strategies used to manage funds: active and passive. Active funds are run by managers who invest your money tactically with the aim of outperforming the market. These funds offer the potential for higher returns than the market, or markets, that the funds assets are invested in. Active management can potentially be useful in more specialised areas, where expert knowledge and field investigation could help to seek out value. Is there any way to reduce portfolio volatility in the long term? Investing in shares through an actively managed fund could help reduce the volatility of a stock-market investment. This is because you will be holding a selection of shares chosen by an expert fund manager, who will be aiming to outperform the market s return over the long term. You can potentially reduce volatility even further by increasing the level of diversification in your portfolio. This means holding a mix of funds that invest in different types of assets, sectors or geographical regions, so you have access to a wider range of opportunities. Passive funds, on the other hand, simply track the performance of a stock market index. Since they don t use a team to select the underlying investments, passive funds tend to have lower charges. Is there any way to reduce portfolio volatility when I invest? A good way to reduce volatility is to invest smaller amounts through a regular savings plan with Fidelity. Some months, share prices will be lower and you ll buy more shares. Others, they will be higher and so your investments are rising in value. There is another way to reduce volatility that also allows you to take full advantage of your ISA allowance. By phasing your investment your total investment is collected up-front and broken into six equal parts, which are then invested monthly into your chosen funds. However, the whole investment counts towards the tax year when you made your initial investment. If you change your mind about phasing at any point, you can also choose to invest the remaining sum sitting as cash straight away. Fidelity ISA Guide 9

10 How to choose funds for your ISA With hundreds of funds on offer, the choice can be daunting. To help make it easier, we ve pulled out a few simple suggestions to get you started. After that, our guidance service can help you build your ISA portfolio. First, you may want to ask yourself 1 Income or growth? What are you investing for? Is it the deposit for your first home, or a better retirement lifestyle? Whatever it is, decide whether you re looking for a regular income or long-term growth. 2 What s my time horizon? This can help you pinpoint how much risk you re happy to take. As a general rule, the longer your time frame, the more risk you can afford because your investments have more time to recover. 3 How do I want to invest? Lump sum or regular contributions? Either way (or both, if you prefer) is possible, provided you don t exceed the annual allowance. 4 One fund or several? Some new investors feel most comfortable with just one fund. Otherwise, a portfolio of funds can provide a mix of investment management styles, as well as of assets and geographies. 10 Fidelity ISA Guide

11 When should I start? If you re wondering when to start investing, we d suggest you should consider beginning as soon as possible. There are two good reasons for this answer the nature of ISA allowances and the power of compounding. What s so special about ISA allowances? An ISA allowance lasts for just one tax year. If you don t use it all by 5 April, you can t carry the remainder into the next tax year. This means that if you wait to invest, you could miss out on valuable tax savings. Over the course of a long-term investment, we believe the tax protection offered by an ISA could add up to a significant amount that would otherwise have been paid to the taxman. Why does compounding matter? Waiting to invest also means you could miss out on the effects of compounding, which can make a significant difference to the value of your investments over the years. To understand its power, imagine a fund that grows by an average of 5% a year after charges. If you invest 10,000 and hold it for ten years, your investment would rise in value by 6,288 (to 16,288). However, putting aside 10,000 for 30 years would mean your investment rises by 33,219 (to 43,219). That s over five times more growth, even though the same amount of money is only invested for three times the number of years. This example shows the effect of compounding and is for illustrative purposes only. Neither the growth rate nor the cash value are guaranteed. All investment funds will have charges and these will also reduce the rate of return. Stock market investments can go down in value as well as up and a return of 5% a year after charges each year may not be achieved. In fact, some years may produce a negative return on your investment and it is possible to get back less than you invest. Fidelity ISA Guide 11

12 Helping you make your investment decisions We know it can be difficult to choose funds to hold in your ISA. If deciding to invest with us through our Stocks & Shares ISA, we offer lots of information and guidance to help you make your decisions. Our guidance service includes a range of tools and services that can help people with all levels of knowledge to start investing. The following pages feature our PathFinder tool, our Select 50 and the online tools to support your own fund research on our fund supermarket. We ve made choosing funds as easy as we can, but it s important to understand that this is not financial advice or a recommendation. You are in full control of picking your funds and managing your account in the future. If you need more help, please speak to an authorised financial adviser. 12 Fidelity ISA Guide

13 PathFinder An easier way to start an ISA Our PathFinder tool provides you with a ready-made, single investment that holds a range of Multi Asset Funds chosen by the Fidelity Multi Asset team. This specialist group of experienced analysts and fund managers is dedicated to developing investments designed to meet a wide range of investor needs. They have been managing our readymade portfolios for over 20 years. PathFinder is designed for people who are looking for an easy and quick way to start investing. All you have to do is pick the investment approach you want to follow. We do everything else for you. Visit fidelity.co.uk/ pathfinder to start your ISA Fidelity ISA Guide 13

14 Capital growth There are five levels of risk available, which are based on the mixes of assets held in the funds. If you want a lower-risk way to invest, you can choose a defensive option that has a greater allocation of bonds and cash. At the other end of the scale, you can opt for a more growth orientated fund some of which can be fully invested in global equities or funds with a higher level of risk. There are three types of Multi Asset Funds that are based on different investment approaches: Fidelity Multi Asset Allocator Funds keep their costs low by investing in funds that simply track the performance of different assets. Fidelity Multi Asset Funds invest mainly in Fidelity s own fund range. This gives you the potential for additional returns by using our own fund manager s stock picking abilities with the aim to outperform the market, but is higher risk. Fidelity Multi Asset Open Funds use our team of experts to seek out talented fund managers from around the world, including Fidelity s. This gives you the potential for additional returns from the diversity of approaches and stock picking skills. Income generating If you are interested in our income options we ll show you three Multi Asset Income Funds to consider. They contain a range of asset classes which aim to deliver a yield for investors and move between different income generating asset classes as the market changes. You can choose to withdraw any income or have it automatically reinvested. 14 Fidelity ISA Guide

15 Visit fidelity.co.uk/ pathfinder to start your ISA Fidelity ISA Guide 15

16 Your instant investment portfolio Once you ve made your decisions, we will sort out everything for you. You ll be investing in a single fund that invests in a range of funds chosen by our experts to suit your chosen level of risk. Our team of experts will use their research and expertise to make the most of opportunities in all economic conditions, as well as managing the day-to-day decisions needed for an effective investment strategy. Please note that the PathFinder tool is not a recommendation or advice in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they also continue to meet your attitude to risk and investment goals. Visit fidelity.co.uk/ pathfinder to get started 16 Fidelity ISA Guide

17 Select 50 Funds ideas direct from Fidelity s experts If you want to build your own ISA portfolio, but you d like a bit of help along the way with some funds to consider, try the Select 50. It contains around 50 funds from the market that we believe stand out from their peers. They are chosen by the Fidelity Multi Asset team, who apply the same criteria to Fidelity funds and those from other companies, so you can be sure you are receiving a balanced and impartial selection. How we choose the funds Select 50 does not simply highlight the best-performing funds in a sector on a particular basis or time period. We choose funds based on our selection team s research and in-depth knowledge of the managers processes and investment philosophies combined with mathematical techniques to analyse each fund manager s past performance and their portfolio. All the funds we select are expected to generate consistent outperformance over the long term, with an appropriate level of risk. The full list is reviewed regularly. If the team finds an outstanding new idea or identify an issue with one of the existing funds, they will make changes. Please see fidelity.co.uk/select for the most recent funds. Introducing the experts Our Multi Asset range and the Select 50 are managed by the same team of specialists Fidelity Multi Asset. They are a global team of investment professionals (located in London, Paris, Hong Kong and Tokyo) who manage over 44 billion*. This gives them on-the-ground access to markets and fund managers across the world. As a result, they have a great deal of experience in identifying the best fund managers from within Fidelity and from other investment management companies all over the globe. They are also experts in asset allocation, so they are able to design mixes of asset classes that they believe offer the right combinations of risk to deliver the right levels of return for our customers needs. *Source: Fidelity Multi Asset as at 31 December Fidelity ISA Guide 17

18 Using the Select 50 The Select 50 is divided into eight easy-to-understand categories covering the world s stock markets, bonds and alternative investment options. For most investors, the first decision will be to decide which categories you want to invest in. If you are starting from scratch, you may want to combine multiple categories to create a portfolio that meets your needs. Whatever approach you choose, please make sure you understand your chosen funds before you invest, including the risks they take. While the Select 50 represents funds that our experts particularly rate, we are not recommending that these funds are right for you. Additionally, you may own a fund that is not listed on the Select 50 and we are not recommending that you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. Visit fidelity.co.uk/ select to start your ISA 18 Fidelity ISA Guide

19 Fund Supermarket All the tools you ll need to research our full range If you like doing your own investment research, you can explore our full fund range using our online tools. In minutes you ll be able to turn over investment funds from more than 100 of the UK s leading fund managers, into your own personal short list. All you have to do is choose the search terms you are interested in. You can then research the funds in more detail using the factsheets that are available on our website. Whatever approach you choose, please make sure you understand your chosen funds listed before you invest, including the risks they take. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. Please remember, the value of investments can go down as well as up, so you may not get back the amount you invest. Looking ahead Whichever option you choose, please remember to review your investments regularly. The easiest way to do this is through our online Account Management service, which gives you the latest performance information for all your investments at any time of the day or night. To get started, just go to fidelity.co.uk/accountmanagement. It s also important to keep in mind that many people find their attitude to risk changes over the years, which may mean changing your investments. Although we are here to help you make your own investment decisions, you are in charge of managing your ISA, so you will have to make any necessary changes to your chosen funds. Visit fidelity.co.uk/ fundsupermarket Before you invest, please ensure you have read Doing Business with Fidelity and the Key Investor Information Document (KIID) or Fund Specific Information Document (FSI), relevant to your chosen fund(s). These documents give you all the information you need to know about Fidelity, including details of the objective, investment policy, risks, charges and past performance associated with the fund(s). Instructions on how to access these documents can be found at fidelity.co.uk/importantinformation. If you do not have a computer or access to the internet please call Fidelity on to request a printed copy of the documents. The Full Prospectus is also available on request from Fidelity. Fidelity ISA Guide 19

20 Start your ISA today fidelity.co.uk Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1216/11483/SSO/0417