Don't forget ISAs
You can make your investments more efficient by avoiding income capital gains tax on up to £7,200 per year. (This has been increased to £10,200 for the over-50s and will rise for everyone on 6 April 2010.)
If you're going to invest, make sure you do it tax-efficiently. You can do this by holding some of your investments in a stocks and shares ISA (individual savings account) which are free from income and capital gains tax.
1. If you're a new investor, think about opening an index-tracking ISA. An index-tracker ‘tracks’ or mirrors the performance of the index it’s based on. If you choose a FTSE 100 tracker, for instance, the fund will be invested in all the top 100 UK companies. Other trackers are available which track other UK indices or markets in other coutries.
Trackers are a cheap and easy way to gain exposure to the UK stock market without having to pick the shares yourself.
You can avoid capital gains tax on any profits you make by putting the index-tracker in an ISA.
2. If you want to be more adventurous and invest in shares directly, you can also do that using an ISA and enjoy the same tax benefits. This type of plan is called a Self-Select ISA, where you can choose the shares you want to invest in yourself.
3. As a half-way house between index-trackers and Self-Select ISAs, you could pick a selection of managed funds and hold them in an ISA too. Although, do make sure the fund you choose can be held in an ISA first. And take extra care when deciding which fund managers to give your money. Some managers are fantastic at out-performing the markets. But many others aren't so adept. Make sure you check out the track record of a fund manager before you dive in.
Take a look at Should you take more risk with your savings for more help.
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