The tax advantages are huge.
ISAs provide investors with gains, dividend and bond income tax free.
As you can see from the graph, if you had invested your full ISA allowance into the best performing fund over the period since ISAs began (Marlborough Special Situations) you would have generated £541,295 profit tax free (chart 1). The blue bar shows the money invested and the orange bar shows the total return of the Marlborough Special Situations fund.
- The combined ISA allowance every year since 1999 amounts to £166,360.
- Assuming you invested this into Marlborough Special Situations fund, the total value is now £707,655
That’s £541,295 tax free profit
As you can see, the results from investing in this fund are impressive…but hindsight is 20:20. This is equivalent to using a pin to select your fund in 1999. You might get lucky or you might have ended up in one of the many poor performers over the period.
So unless you have a crystal ball, the chances of picking that fund are pretty small.
For an evidence-based process with a record of providing superior returns have a look at our blog on using momentum to select your funds.
ACTION FOR INVESTORS
- Use your ISA allowance
- Invest with a plan (don’t use a pin-and-paper approach)
- Stick to it with discipline
FURTHER READING
Chart 1: Marlborough Special Situations investment compared to cumulative ISA allowance
Performance period 6/4/1999-24/2/2017