16. Summing up ISAs for 2002/2003Investing free of tax is better than investing and having a part of the proceeds taken away by the Chancellor.
The markets have been poor in the last three years as we have come out of the bubble that burst after the FT-SE 100 Index reached its high of 6930.20 on 30 December 1999, right at the end of the 20th century. This has meant that popular sentiment has turned against investing in general and ISAs in particular.
Also, the current world uncertainty mitigates against investing until the economic and political climate becomes clearer.
But all the history says that staying invested pays off in the medium term and that the conditions that apply now are the exception, not the rule. At this time three years ago, stocks-and-shares ISAs sold like hot cakes as investors expected the superb capital gains they had come to see as the norm to continue on.
But private investors are notorious for buying at the top- and selling at the bottom. In today’s climate, with the indices at half their 1999/2000 tops, equity-based ISAs represent twice as good an investment for the long term as they did then. And with lower inflation, a CGT-free future annual growth rate of, say, 7-8%, although less than the average for the past 25 years, represents a really worthwhile return.
Cash ISAs have become more popular as the enthusiasm for equity ISAs has waned. They are a no-brainer for anyone, especially a 40% tax-payer, with money in a bank or building society deposit account. The financial services industry expects that they, and income and corporate bond ISAs, will again be the most-bought this year and those are currently the most advertised.
The industry now allows, almost encourages, the drip-feeding of money into the markets. You can put in your full entitlement of £7,000 into a Maxi-ISA, get tax-free interest on it and not have to make a decision on where it is invested for around 12 months. Or you can invest it slowly but surely on a monthly basis.
It is a shame that dividend receipts will be taxed in ISAs from 6 April next year; this has undermined the basic attraction. But most companies allow you to take your dividends in extra shares and in a self-select ISA leaving them to compound in your fund taxfree will still bring real growth.
Good luck with your ISA investing this year!
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