The UK's best Stocks and Shares ISAs

by Ed Bowsher on 25 March 2013  |  11 comments
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Here's the lowdown on the best Stocks and Shares ISAs right now.

If you have some spare cash that you won’t need for a while, I’d urge you to at least consider opening a Stocks and Shares ISA. Investing in the stock market is a great way to build long-term wealth, and a Stocks and Shares ISA enables you to invest without paying any tax.

Before I recommend some ISA investments, let’s just do a quick recap of the rules. The maximum investment in a Cash ISA is £5,640. If you don’t open a Cash ISA, you can invest up to £11,280 in a Stocks and Shares ISA during the current tax year.

If you’ve already opened a Cash ISA, take the total amount you’ve placed in the Cash ISA and subtract that from £11,280. That gives the amount you can invest in a Stocks and Shares ISA this year.

How to invest

So now we can ask: Which Stocks and Shares ISA should you go for?

These days it makes sense to run your ISA via one of the online investment platforms, also known as ‘fund supermarkets'. These platforms give you a wide range of possible investments and you can also monitor your investments without any hassle. The charges are normally really low too.

Hargreaves Lansdown is probably the best known investment platform for private individuals, but I prefer some of the lesser known players such as Alliance Trust Savings, rplan and Cavendish Online. Mainly because they’re all cheaper!

Read more in The cheapest investment platforms – rivals to Hargreaves Lansdown.

Actual investments

The next decision is to choose some actual investments for your Stocks and Shares ISA.

Perhaps surprisingly, the rules for Stocks and Shares ISAs don’t restrict you to just investing in stocks and shares. You can also invest in corporate bonds and gilts as well as investment funds such as OEICs, unit trusts and investment trusts.

I’m a strong believer that index trackers are the best kind of investment funds. These are funds that replicate a particular stock market index such as London’s FTSE All-share index. So if the FTSE All-Share rises by 10%, a FTSE All-share tracker fund should rise by roughly 10% too.

The charges for index trackers are nearly always on the low side because you’re not having to pay for an expensive City fund manager to pick stocks, a computer does it instead.

A portfolio with just two or three tracker funds is fine for most people. Here are my five favourite index tracker funds:

Five top index trackers

So if you want to take a really simple approach, you could put half of your ISA cash in the Vanguard FTSE UK Index fund, and half in the Vanguard FTSE Developed World ex UK Equity Index Fund.

The first Vanguard fund is purely invested in companies listed on the London stock market. The second Vanguard fund is invested in all the main stock markets around the world apart from London.

So putting your money in these two funds gives you a nice spread of investments around the world and the charges are really cheap.

Let’s imagine you invested your full ISA allowance in these two Vanguard funds via the Alliance Trust Savings platform. That would work out at £5,640 in each fund.

You’d only have to pay three charges for this investment. Firstly, a one-off dealing charge of £12.50 to Alliance Trust (£25 in total). Secondly a £12 quarterly charge to Alliance Trust Savings (£48 a year.) And thirdly, a 0.15% annual charge to Vanguard which works out at £16.92 a year for your total ISA investment in both funds.

Admittedly, Alliance Trust Savings isn’t the cheapest investment platform out there, but I think it’s the cheapest of those that offer the Vanguard funds.

You can find out more about the leading tracker funds in Top 10 index trackers.

More excitement

If you want a bit more excitement, you could also invest some of your money in one or two investment trusts. Most investment trusts are actively managed, but the charges are cheaper than for many unit trusts and OEICs, and there are some good trusts out there.

My two favourite investment trusts at the moment are the Throgmorton Trust and the Templeton Emerging Markets trust. The Throgmorton Trust invests in smaller UK companies, has two excellent managers and is far too cheap at the moment.

The Templeton Emerging Markets Trust invests in growing emerging markets such as China and India. I’m convinced that these are the markets where you’re going to get the most growth over the next ten or twenty years.

The manager of this trust, Dr Mark Mobius, is a true investment star. So I’m very happy to have some of my pension in this trust. It could work well for you as part of your ISA.

You can read more about these two trusts in Five top investment trusts.

Individual shares

You may want to try your hand at investing in individual companies. This is riskier than putting your money in a fund, but the rewards can be great and you may enjoy it!

If you’re tempted, I’d urge you to do some reading first. I like a book called Shares Made Simple – it’s a good introduction. This video is also worth watching and you could also get some great ideas on The Motley Fool website.

Check out our video: Should you be scared of the stock market?

This is a classic article that is regularly updated

Compare ISAs

More on ISAs and investing:
Why you should invest in shares
Five top investment trusts
The best Cash ISAs
Top Cash ISA catches to watch out for
Don’t just focus on the Footsie