Changes to ISA rules, Government encouraging more risk
Discussion
Long term, it seems pretty clear that the best place to maximise your returns is in the stock market, especially a globally diversified approach. Even if you invest right before a crash, long term statistically you are almost certain to do better than either staying in cash or trying to time the market.
But this only works if you have the nerve to ride out any downturns (which can be as severe as 40-50% at worst) and not panic sell. This is partly psychology, but also relies on you having sufficient income and assets not to need the money in the short or medium term.
ie while a stocks first approach is almost certain to maximise your returns, it's absolutely not the best approach for everyone.
So why is the Government pushing traditional cash ISA savers (who are almost guarantees to be in the group least suited to weather the volatility of the markets) into investing more in stocks? These savers, now being pushed into being investors are probably the most likely to panic when there is a significant market crash, and sell, locking in losses.
It seems like the worst kind of mis-selling, yet it's coming from Government, Madness. The only people who will benefit are the Government who take their stamp duty cut of trades and experienced investors who will benefit from the market inflating effect of more money being pumped into the market.
It seems at best poorly thought out, and at worst just cynical.
But this only works if you have the nerve to ride out any downturns (which can be as severe as 40-50% at worst) and not panic sell. This is partly psychology, but also relies on you having sufficient income and assets not to need the money in the short or medium term.
ie while a stocks first approach is almost certain to maximise your returns, it's absolutely not the best approach for everyone.
So why is the Government pushing traditional cash ISA savers (who are almost guarantees to be in the group least suited to weather the volatility of the markets) into investing more in stocks? These savers, now being pushed into being investors are probably the most likely to panic when there is a significant market crash, and sell, locking in losses.
It seems like the worst kind of mis-selling, yet it's coming from Government, Madness. The only people who will benefit are the Government who take their stamp duty cut of trades and experienced investors who will benefit from the market inflating effect of more money being pumped into the market.
It seems at best poorly thought out, and at worst just cynical.
Inlineonline said:
Long term, it seems pretty clear that the best place to maximise your returns is in the stock market, especially a globally diversified approach. Even if you invest right before a crash, long term statistically you are almost certain to do better than either staying in cash or trying to time the market.
But this only works if you have the nerve to ride out any downturns (which can be as severe as 40-50% at worst) and not panic sell. This is partly psychology, but also relies on you having sufficient income and assets not to need the money in the short or medium term.
ie while a stocks first approach is almost certain to maximise your returns, it's absolutely not the best approach for everyone.
So why is the Government pushing traditional cash ISA savers (who are almost guarantees to be in the group least suited to weather the volatility of the markets) into investing more in stocks? These savers, now being pushed into being investors are probably the most likely to panic when there is a significant market crash, and sell, locking in losses.
It seems like the worst kind of mis-selling, yet it's coming from Government, Madness. The only people who will benefit are the Government who take their stamp duty cut of trades and experienced investors who will benefit from the market inflating effect of more money being pumped into the market.
It seems at best poorly thought out, and at worst just cynical.
Worse kind of mis-selling??? Stop yer skoolgirl-like fretting!!!But this only works if you have the nerve to ride out any downturns (which can be as severe as 40-50% at worst) and not panic sell. This is partly psychology, but also relies on you having sufficient income and assets not to need the money in the short or medium term.
ie while a stocks first approach is almost certain to maximise your returns, it's absolutely not the best approach for everyone.
So why is the Government pushing traditional cash ISA savers (who are almost guarantees to be in the group least suited to weather the volatility of the markets) into investing more in stocks? These savers, now being pushed into being investors are probably the most likely to panic when there is a significant market crash, and sell, locking in losses.
It seems like the worst kind of mis-selling, yet it's coming from Government, Madness. The only people who will benefit are the Government who take their stamp duty cut of trades and experienced investors who will benefit from the market inflating effect of more money being pumped into the market.
It seems at best poorly thought out, and at worst just cynical.
Surely small & private investors will stand to benefit from the increase in additional capital entering the market?
And is it really such a bad thing to encourage savers to invest in British and international companies? Not all S&S ISA's are made up of super risky assets and people will be able to access UK Gov cash investments like Premium Bonds (zero risk) etc. still. I would expect that most people that have ISA's are fairly well educated and can make decisions based on the information that is easily accessible.
LRDefender said:
I would expect that most people that have ISA's are fairly well educated and can make decisions based on the information that is easily accessible.
I think many people who have money in Cash ISAs are essentially 'savings account' type people who would normally plump for a risk-free 3-4% in a bank in building society but choose a Cash ISA because 'it's tax free isn't it' (if you mention the £1,000 interest allowance you'll get a blank look). Getting them to invest in the markets is IMHO madness; if they wanted to do that then they already would be. For many people the world of 'investments' we talk about here is a closed book, they don't even know it exists.My cat probably know more about investing that Rachel does. Most of the FTSE100, which is the only thing most people have ever heard of, isn't British anyway. All this move will do is open the door to new band of advisors making a percentage and another huge round of complaints when it all goes wrong.
Simpo Two said:
I think many people who have money in Cash ISAs are essentially 'savings account' type people who would normally plump for a risk-free 3-4% in a bank in building society but choose a Cash ISA because 'it's tax free isn't it' (if you mention the £1,000 interest allowance you'll get a blank look). Getting them to invest in the markets is IMHO madness; if they wanted to do that then they already would be. For many people the world of 'investments' we talk about here is a closed book, they don't even know it exists.
My cat probably know more about investing that Rachel does. Most of the FTSE100, which is the only thing most people have ever heard of, isn't British anyway. All this move will do is open the door to new band of advisors making a percentage and another huge round of complaints when it all goes wrong.
Absolute poppycock..!! My cat probably know more about investing that Rachel does. Most of the FTSE100, which is the only thing most people have ever heard of, isn't British anyway. All this move will do is open the door to new band of advisors making a percentage and another huge round of complaints when it all goes wrong.
Folks need to make their money work hard and leaving it in a cash ISA that rarely beats inflation is the definition of stupidity.
For the elderly a cash account can provide the cost security blankey they might feel they need but this is an ever shrinking demographic. Encouraging folks to think about making their hard earned money work harder is a positive step, not perfect but it’s going in the right direction.
What is your cats commission?
But people who have cash ISA's either have a very good reason not to put that money in risky places, or simply don't understand the stock market.
If the Government wanted to improve financial literacy there are any number of ways of addressing that and then they could just let people decide.
For starters I'd imagine that a lot of the people this is aimed at could simply put the other £8,000 in a taxable cash account and they would be below the savings limit with no tax to pay anyway (a basic rate taxpayer could have around £22,000 in a taxable cash account and earn up to £1,000 in interest tax free for example, I suspect most people don't realise this)
Just pushing people into stock market investments that they probably don't understand doesn't seem that responsible to me.
(We're 80% in stocks, so I'm not anti shares, but we have both experience and knowledge to know the risks btw)
If the Government wanted to improve financial literacy there are any number of ways of addressing that and then they could just let people decide.
For starters I'd imagine that a lot of the people this is aimed at could simply put the other £8,000 in a taxable cash account and they would be below the savings limit with no tax to pay anyway (a basic rate taxpayer could have around £22,000 in a taxable cash account and earn up to £1,000 in interest tax free for example, I suspect most people don't realise this)
Just pushing people into stock market investments that they probably don't understand doesn't seem that responsible to me.
(We're 80% in stocks, so I'm not anti shares, but we have both experience and knowledge to know the risks btw)
Edited by Inlineonline on Tuesday 5th May 12:49
I think it's an odd move. And if the purpose is to encourage people to invest in the stock market I really don't think it will achieve that. Most savers will probably just stick to higher interest savings accounts and take the hit on tax. Perhaps that's what the government are secretly hoping for?
It's probably not a big deal for most. You can still save £12k a year in a cash ISA which is enough for the majority of people. Those with more spare cash are probably investing anyway. Over 65s who don't want exposure to the stock market are exempt anyway.
It does affect people who come into larger sums like inheritance and need to get it into a tax wrapper quickly. You can of course put £12k in a cash ISA and £8k in a s&s ISA which pays interest on unimvested cash. Then simply don't invest it. Or invest it in a safe fund which is unlikely to suffer big gains or losses. I have also wondered if it will be possible to use platforms which offer both types of ISA and switch money between them? So T212 for example, pay £20k into their s&s ISA then switch it into their cash ISA. Although the government have probably thought of that!
It's probably not a big deal for most. You can still save £12k a year in a cash ISA which is enough for the majority of people. Those with more spare cash are probably investing anyway. Over 65s who don't want exposure to the stock market are exempt anyway.
It does affect people who come into larger sums like inheritance and need to get it into a tax wrapper quickly. You can of course put £12k in a cash ISA and £8k in a s&s ISA which pays interest on unimvested cash. Then simply don't invest it. Or invest it in a safe fund which is unlikely to suffer big gains or losses. I have also wondered if it will be possible to use platforms which offer both types of ISA and switch money between them? So T212 for example, pay £20k into their s&s ISA then switch it into their cash ISA. Although the government have probably thought of that!
Inlineonline said:
But people who have cash ISA's either have a very good reason not to put that money in risky places, or simply don't understand the stock market.
I'd say definitely the latter.My wife has over 6 figures in cash ISAs. She simply will not entertain the idea of investing in stocks and shares. I was the same until very recently.
She has zero interest (no pun intended) in financial stuff and it's all I can do to get her to switch accounts for rates which at least are above inflation.
LRDefender said:
Simpo Two said:
I think many people who have money in Cash ISAs are essentially 'savings account' type people who would normally plump for a risk-free 3-4% in a bank in building society but choose a Cash ISA because 'it's tax free isn't it' (if you mention the £1,000 interest allowance you'll get a blank look). Getting them to invest in the markets is IMHO madness; if they wanted to do that then they already would be. For many people the world of 'investments' we talk about here is a closed book, they don't even know it exists.
My cat probably know more about investing that Rachel does. Most of the FTSE100, which is the only thing most people have ever heard of, isn't British anyway. All this move will do is open the door to new band of advisors making a percentage and another huge round of complaints when it all goes wrong.
Absolute poppycock..!! My cat probably know more about investing that Rachel does. Most of the FTSE100, which is the only thing most people have ever heard of, isn't British anyway. All this move will do is open the door to new band of advisors making a percentage and another huge round of complaints when it all goes wrong.
Folks need to make their money work hard and leaving it in a cash ISA that rarely beats inflation is the definition of stupidity.
For the elderly a cash account can provide the cost security blankey they might feel they need but this is an ever shrinking demographic. Encouraging folks to think about making their hard earned money work harder is a positive step, not perfect but it s going in the right direction.
What is your cats commission?
It amazes me how few people properly understand ISAs anyway and how many basic ISA questions we get on here.
The changes add a further complication to ISAs and ultimately limit ISA freedom so it is hard to be positive about them.
Also it is a reduction in freedom not for everybody but for under-65s. Which seems odd, because over-65s have probably done all of their accumulation, where as young people may want to use the cash facility for e.g. an emergency fund (which for many, now takes two tax years to fund...)
It doesn't affect me so I'm alright, Jack. My cash emergency fund is already in an ISA, I have other ISA cash, and most of my future contributions are going into S&S anyway. I'm just glad the £20k allowance has been left alone.
I wonder if the policy will be successful in encouraging non-investors to invest. Whether that is even a good idea? and how many people will be deterred altogether by the additional wrinkle.
The changes add a further complication to ISAs and ultimately limit ISA freedom so it is hard to be positive about them.
Also it is a reduction in freedom not for everybody but for under-65s. Which seems odd, because over-65s have probably done all of their accumulation, where as young people may want to use the cash facility for e.g. an emergency fund (which for many, now takes two tax years to fund...)
It doesn't affect me so I'm alright, Jack. My cash emergency fund is already in an ISA, I have other ISA cash, and most of my future contributions are going into S&S anyway. I'm just glad the £20k allowance has been left alone.
I wonder if the policy will be successful in encouraging non-investors to invest. Whether that is even a good idea? and how many people will be deterred altogether by the additional wrinkle.
LRDefender said:
Absolute poppycock..!!
Mm, well, go out on the street and ask people (1) Do you know what a stocks and shares ISA is? (2) How would you go about investing in one? (3) What products would you invest in and why? Pick 100 people of all ages, backgrounds and ethnicities and report back...My cat's remuneration is free board and lodging and vets bills
Inlineonline said:
But people who have cash ISA's either have a very good reason not to put that money in risky places, or simply don't understand the stock market.
Bingo.Inlineonline said:
If the Government wanted to improve financial literacy there are any number of ways of addressing that and then they could just let people decide.
That's assuming the Government is financially literate, but they don't show any signs of it.Simpo Two said:
Inlineonline said:
But people who have cash ISA's either have a very good reason not to put that money in risky places, or simply don't understand the stock market.
Bingo.Inlineonline said:
If the Government wanted to improve financial literacy there are any number of ways of addressing that and then they could just let people decide.
That's assuming the Government is financially literate, but they don't show any signs of it.
They could always send Rachel on the first course?
LRDefender said:
Absolute poppycock..!!
Folks need to make their money work hard and leaving it in a cash ISA that rarely beats inflation is the definition of stupidity.
For the elderly a cash account can provide the cost security blankey they might feel they need but this is an ever shrinking demographic. Encouraging folks to think about making their hard earned money work harder is a positive step, not perfect but it s going in the right direction.
What is your cats commission?
It would be great if the government would put people’s minds at rest by underwriting the potential for making a loss in an S&S ISA. Perhaps offer to split the difference in the gain versus the return that would have been made in a Cash ISA? Folks need to make their money work hard and leaving it in a cash ISA that rarely beats inflation is the definition of stupidity.
For the elderly a cash account can provide the cost security blankey they might feel they need but this is an ever shrinking demographic. Encouraging folks to think about making their hard earned money work harder is a positive step, not perfect but it s going in the right direction.
What is your cats commission?
BAMoFo said:
It would be great if the government would put people s minds at rest by underwriting the potential for making a loss in an S&S ISA. Perhaps offer to split the difference in the gain versus the return that would have been made in a Cash ISA?
That is simply not going to happen.paulguitar said:
BAMoFo said:
It would be great if the government would put people s minds at rest by underwriting the potential for making a loss in an S&S ISA. Perhaps offer to split the difference in the gain versus the return that would have been made in a Cash ISA?
That is simply not going to happen.Gassing Station | Finance | Top of Page | What's New | My Stuff