Self-select ISAs

ADVANCED

ISAGUIDE INVESTMENT JARGON Balance shet: a statement of a company’s financial condition that shows its total assets, its liabilities, and its net worth (the difference between the two). The company’s net worth is also known as owners’ or shareholders’ equity. Consensus forecast: a prediction of the future – for anything from a stockmarket’s likely value to a country’s economic growth – produced by combining several separate forecasts. Dividend: the payment made by companies to the shareholders investing in them. Most pay twice a year – an interim and a final dividend. Dividend cover: the measure of a company’s ability to pay its dividend; it shows how many times the ordinary dividend is covered by profits available. Earnings per share: the company’s net income or earnings divided by the number of shares outstanding, which tells investors how much they’ll earn on each share they own in that firm. Price-to-earnings ratio (P/E ratio): this is the ratio of the company’s current share price to its earnings per share. A high P/E ratio indicates the company is highly valued relative to the amount it’s actually earning; a low one may show investors don’t value it highly.

of your annual ISA allowance. But the transfer must take place within 90 days of you receiving the shares or your exercising the share option.

If you want to transfer other shares into your ISA you’ll have to sell them and buy them back through the ISA, which will involve dealing charges.

What kind of investors are self-select ISAs suitable for? The big attraction for most self-select investors is the ability to build their own tax-free share portfolio, rather than relying on a fund manager to do it for them. So self-select ISA holders are generally quite active investors – doing their own research into companies, keeping tabs on share performance, and selling out when they think it’s the right time.

Others take a more ‘buy-and-hold’ approach, building a portfolio of reliable shares for the long term. And others again may be using a self-select ISA because they want to hold investment trusts rather than ordinary funds. But it’s fair to say that most self-select investors tend to be quite actively interested in market movements and the progress of their investments. who are they not well suited to? If you only want to invest in funds and can’t see your preferences changing in future, you don’t need a self-select ISA.You’d do better with a standard investment ISA where you simply choose the focus for your ISA – for example UK equities – and a fund manager will decide which individual products to purchase. And if you’re not really interested in financial markets and just want a ‘one-stopshop’ investment that you can forget about for the next 10 years, self-select ISAs definitely aren’t for you as they require active management.

What sort of providers offer them? You can get a self-select ISA from most stockbrokers and wealth managers, but they come with varying levels of advice. The cheapest options are online execution-only products (where no personal investment advice is on offer, you simply buy and sell assets as you wish), from brokers such as Interactive Investor, Sippdeal, Alliance Trust Savings and Halifax.

What should I look out for when I’m choosing one? First of all, make sure that the broker you’re interested in actually offers the investments you want within a self-select ISA. Some online ISAs, such as that from Standard Life, only offer funds.

If you’re taking the execution-only route, it’s also worth looking at the quality of the background research provided on that website – some providers are much more generous than others with their guidance on shares and funds.

Apart from that, consider the costs involved. Share dealers need to look at their dealing costs, which can vary considerably between brokers. And there may also be an annual administration fee for the ISA wrapper itself to bear in mind.We look at charges in more detail on page 9.

4 MONEYWISE | ADVANCED I SA GUIDE 2012

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