High Risk vs Low Risk Investment ISAs

Looking to make your money go further in 2021? Investment ISAs can be a rewarding option if you’re hoping to make serious returns on your savings, but as they are subject to the ups and downs of the stock market, you’ll need to be prepared to take on some risk.

In this concise guide to high and low-risk investment ISAs, we’ll explore the concept of investment risk, as well as outlining some steps you can take to ensure you find the right stocks & shares ISA at a level of risk you’re comfortable with, whether you want to set the stakes high or proceed with a bit more caution.

It will cover the following topics:

What is meant by investment ‘risk’?

Before you go ahead with an investment of any kind, it’s important to have a solid understanding of the concept of risk, as well as a good idea of your own attitude towards it. Risk involves uncertainty by its very nature – but there are a few rules of thumb to help determine the relative risk of certain investment choices over others.

For examples:

• The greater the return you want, the more risk you will have to take
• The more risk you take overall, the more you could potentially lose
• When taking more risk, it usually makes sense to invest over a longer period
• Shares are considered one of the best investments for beating inflation

Remember, these are only general observations based on historic trends, and even experienced investors can be caught out by market volatility. This is why it’s so important to ensure you are comfortable with any investment you might consider.

How much risk are you prepared to take?

This is a very personal decision that varies a great deal between individuals, and to a large extent, the answer will depend on your personality and general attitude to life.

If you’re not completely sure what level of risk you’d be comfortable with, you can start by asking yourself some simple questions, such as: are you prepared to lose money in any circumstances, and if so, how much can you afford to put at risk? What potential return on any investment would make it worth accepting more risk for you?

There may be additional factors related to your individual financial situation that you’ll need to consider, some of which may not be immediately obvious. For extra peace of mind, speak to an expert who can help to ensure you have covered off everything you need to factor in and get you set up with the best provider for your needs.

How risky is an investment ISA?

While all investment ISAs carry the ultimate risk of returning less than you invested, the good news is that within this category of savings products, you can still have a degree of choice and control over how high you want to set the stakes.

There are no definites in the investment world, but some markets are generally considered safer than others: well-established economies are generally a more stable investment than emerging markets for example, but there are still different levels of risk within each market.

It will be up to you if you want to include the most high-risk investment funds in your portfolio or not. If you don’t feel confident assessing the risk level of an ISA you’re interested in, speak to an expert who can provide you with an impartial assessment.

How to choose the right investment ISA for your needs

Many investment ISAs allow you to fine-tune your own preferred ‘risk/reward’ profile when you set up the account and will present you with a range of options varying in risk level, e.g. low to medium to high to very high. This feature allows you to state from the outset that you want to avoid the most high-risk investment strategies.

Providers may even offer ‘best’, ‘most likely’ and ‘worst case’ scenarios showing estimated returns for each profile, by applying algorithms to the amount you’re looking to invest. But don’t forget these are only illustrations, and you’ll get more insight and impartial advice from an independent (human) financial advisor, who will conduct an Attitude to Risk assessment with you to help you establish what that is.

If you’re keen to open an investment ISA but are not 100% confident in how to balance your risk-reward strategy, we recommend speaking to an expert who can give bespoke advice depending on your circumstances. Please make an enquiry if you’d like us to match you up with one on a no-obligation basis.

How much can you afford to invest?

Regardless of your attitude towards risk, perhaps the most important consideration when putting money into a stocks and shares ISA is how much you can actually afford to invest. If you don’t already have a figure in mind, you might want to ask yourself the following questions:

• How much could you afford to lose in the worst case?
• How soon do you need access to your savings?

What other savings can you draw on?

Investment ISAs are generally taken out in addition to a cash ISA, as most people prefer to hold at least some of their savings in cash. Cash is more stable and can be accessed more easily, so you’ll need to think about how you want to spread the balance of your savings.

Having more than one ISA at the same time is allowed (although you can only open one of each type per tax year), whether the ISAs are based in cash, stocks & shares or a combination of both. However, your tax-free allowance of £20,000 per year remains the same across all ISAs.

Don’t forget that if you’re planning to transfer money from an existing cash ISA into stocks & shares, you’ll also need to stick to the cash to investment ISA transfer rules, i.e you’ll have to transfer the whole balance of a cash ISA you’ve paid into in the same tax year.

Can you control your own investments?

Many providers offer DIY platforms that allow you to pick and choose your own investments once you’re on board. These hands-on investment ISAs are a bit like self-invested personal pensions or SIPPs, in that you get to manage your own portfolio, but like SIPPs, they can be a more time-consuming option that better suits individuals with some investment experience.

So another question to ask yourself is whether it’s more important to you to have greater control over your investments but more ‘admin’, or to have less direct involvement with your portfolio and leave it to the professionals to manage it on your behalf.

Other factors

There are a few other factors that you might want to be aware of before settling on a provider. These may include:

• Exit fees: Some providers set these high to stop you moving your investment elsewhere.
• Management fees: These can vary a great deal according to how much financial advice and other services are built into your ISA.
• Transfer fees: Some providers charge you to transfer money into an investment platform. And others may not accept inbound transfers at all.

Speak to an expert on investment ISAs today

Whether you’re looking for low-risk investments for retirement or more high-risk investment options short or long-term, the experienced financial advisors we work with can help you to find the ideal investment strategy for your savings.

All of the advisors on our books have access to the entire ISA market, so they can offer truly impartial advice that’s tailored to your unique needs and preferences. So please get in touch today for a no-obligation initial chat to help us match you with the right advisor.