For the first time Share Centre research shows that, although equity stocks still heavily outweigh funds in the average stocks and shares Isa portfolio, the UK’s appetite for diversification and growth through investing in funds is dramatically growing.
Five years ago, the average stocks and shares Isa portfolio was comprised of a 98 per cent equities to 2 per cent funds split. This increase equates to a 450 per cent increase in that time in the popularity of holding funds within an Isa.
The number of trades made during an Isa season has increased since 2007/08, with the average investor completing six trades this tax year. This is a 100 per cent rise on the three trades made on average five years ago, and suggests that investors are following the strategy of drip feeding sums into their stocks and shares Isa rather than transferring large amounts in one trade.
The research also shows that age plays a major part in both the make-up of a portfolio, the level of activity and the average value of trades.
Younger investors (18-24 years) are more likely to invest their Isa portfolio in funds than older investors. They are also less likely to trade (five trades), and more likely to have a lower value of trades (£1,200.41). In comparison, older investors potentially approaching retirement (55 years plus) hold a 90 per cent to 10 per cent split between equities and funds, and make six trades with an average value of £2,192.86.
The research reveals that men are more active traders than women, with seven trades so far this year, in comparison to women’s six. Women are also more likely to have a higher value of trades than men, this year making trades worth £2,159.10, £55 more than men.
In spite of the number of trades increasing, Isa investors are still missing out on making the most of their tax efficient investment portfolio. All adults in the UK can invest up to £11,280 this tax year into a stocks and shares Isa.
On average, investors so far are using just more than half of their average Isa allocation, roughly £6,655. Older investors are seemingly wisest to the benefits of using an Isa and are already using 69 per cent of this season’s allocation, while younger investors are missing out by only utilising 40 per cent of theirs.
It is vital investors take advantage of their Isa allowance and protect what they can from the taxman. Cash Isa rates remain unattractive as when compared to the current rate of inflation, investor’s purchasing power is likely to be negative. For those prepared to accept a higher degree of risk, the rewards of a stocks and shares Isa are potentially more fruitful.
While volatile markets may have left some wary of investing, it is worth bearing in mind that in the longer term, returns from equity backed investments have consistently outperformed cash.
Andy Parsons is head of investment research at The Share Centre
The research- key stats to consider
