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Diversifying Investments – Risk and Reward

Published on April 13, 2017

IFISA should be seen as complimentary to traditional ISA types, as well as an alternative asset class. As with Stocks and Shares ISAs, your ISA investment is at risk (not covered by the FSCS). But with the acceptance of some risk comes the potential for greater financial rewards.

We all have different financial risk ‘appetites’. Some people aren’t comfortable taking any risk with their money but many of us are willing to take some risk – although the level of risk can vary significantly. If you aren’t willing to accept any risk, Cash ISAs alone may meet your risk-reward requirements – albeit spreading risk between providers is always a good idea. If you’re willing to accept some risk, chances are you’ll be able to achieve the risk level you’re comfortable with by balancing ISA investments across the types and providers.

As with most financial products it’s important to choose your provider(s) carefully and ‘shop around’. Your choice of platform and the measures they have (or don’t have) in place to help reduce risk can go a long way to determining how ‘risky’ your investment is.

 

The one new ISA of each type per year for new subscriptions rule

As the long-winded title suggests, this can be a little confusing. ISA rules state that you can only subscribe new money to one ISA of each type each tax year. You can however open more than one of each type in a tax year, say if you’re opening extra ones to ‘house’ transfers from previous years.

So, if you’re investing to an IFISA for the first time in 2017-18, you don’t necessarily need to invest it all with one provider. Some or all your £20,000 ISA allowance can be subscribed into a new IFISA with one provider and any ISA funds from previous tax years can be transferred to additional new IFISA(s). This helps investors to quickly diversify their risk between IFISA providers.