Another record year in the books

One stock that fits the bill in my eyes is sub-prime auto lender S&U (LSE: SUS). Full-year results released this morning showed the group notched up increased profits for the 18th year in a row while  dividend payouts increased 15% to 105p, which equals a yield of 4.4% at today’s share price.

As this substantial increase in shareholder returns suggests, the last year was another quietly great one for S&U. Pre-tax profits rose a full 20% to £30.2m while revenue increased 32% to £79.8m as management invested significant capital into bringing on board new customers, which should begin to flow through the business as profits in the coming quarters.

Customer numbers for the year rose 26% as the group’s brand recognition rose and contributed to a very significant increase in applications. This allowed for a substantial uplift in new policies written while still maintaining the acceptance rate at a low 3%, showing the conservative outlook the management team, led by the twin grandsons of the founder, takes towards growing the business.  

This slow but steady progress is necessary in the cyclical field of lending, particularly the sub-prime type. And with a stable and growing used car market boosting demand for its services now and a history of growing profitably even through cyclical downturns, I reckon S&U could be a great growth and income pick for long-term investors.

Near-monopoly profits on the Isle of Man 

But if S&U is a bit too risky for you and you prefer higher income potential from your holding, I think Manx Telecom (LSE: MANX) could fit the bill. As its name says, this £200m market cap firm is the major provider of fixed line, mobile and broadband solutions for businesses and customers on the Isle of Man.

This market-leading position in a market that is too small to attract the attention of larger telecoms firms produces significant pricing power for the firm and cash returns for its investors.

In fiscal year 2017, revenues of £78.5m produced free cash flow of £20m, of which £12.6m was paid out to shareholders in dividends that currently yield 6.2%. While revenue fell from £80.8m in the year prior and EBITDA also dropped from £27.7m to £271.m year-on-year, the company is in good shape and actually offers decent if unspectacular future growth prospects.

Most of this growth will come from the global solutions segment, which among other things sells UK SIM cards to international travellers, particularly Chinese ones, before they ever even reach Heathrow. Last year revenue from this division rose 6.2% and with positive momentum expected in the data centres business in 2018 following the loss of a single big customer last year, Manx should see revenue returning to positive growth this year.

Although the business won’t be growing by leaps and bounds, its dominant position in its core market, growth opportunities and large dividend, make it one stock conservative, long-term income investors may come to love in their retirement portfolio. 

The post Two high-yield dividend plus growth stocks I’d buy for an ISA appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Manx Telecom and S & U. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100

Stocks are the cornerstone of almost every investment portfolio, and almost every UK investor has at least some exposure to the FTSE 100 Index. It is, after all, the UK’s most watched stock market indicator. With a combined market value of around £2trn, FTSE 100 companies account for roughly 80% of the entire market capitalisation of the London Stock Exchange.

Investing in the FTSE 100 gives you a great deal of exposure to the UK economy, but it also has a lot of international exposure too. That’s because more than 75% of the revenues from FTSE 100 companies actually comes from overseas. Also, being packed with multinationals making most of their earnings in foreign currencies means the index has benefited from the acute weakness of sterling seen in the wake of the Brexit vote of last June.

With an Ongoing Charges Figure (OCF) of only 0.07%, the iShares Core FTSE 100 UCITS ETF (LSE: ISF) is one of the cheapest funds which track the performance of the FTSE 100 Index.

European exposure

Although the US stock market has outshone European equities in recent years, I think the performance of European stocks could catch up in the coming months. European stocks are, on average, relatively cheap, with a cyclically adjusted price to earnings (CAPE) ratio of around 17, compared to 28 for US stocks.

For exposure to European equities, I reckon the db x-trackers Euro Stoxx 50® UCITS ETF (LSE: XESX) is a great choice. The ETF tracks the performance of the 50 largest companies in the eurozone and benefits from very low costs — its OCF is just 0.09%.

Smart-beta

For investors who aren’t so keen to track broad market indexes, smart-beta ETFs may offer many of the benefits of active management but at much lower cost.

Unlike most traditional passive ETFs, such as the two mentioned above, which follow stock market indexes that give larger companies a proportionately bigger slice of the index, smart-beta ETFs follow a different kind of index, in which stock weights are based on other factors, such as volatility, momentum, value or dividend yield. As such, smart-beta ETFs track tailor-made indexes which attempt to beat the market.

In this space, I’m currently interested in the Vanguard Global Minimum Volatility UCITS ETF (LSE: VMVL). It’s a relatively new fund, which uses a quantitative model to select stocks based on their individual volatility levels and diversification characteristics. Thus, its goal is to produce a portfolio which delivers less volatility and better risk adjusted returns compared to the global equity market.

Vanguard’s smart-beta fund has an OCF of 0.22%, which isn’t much more expensive than the cheapest ETFs on the market today. However, the OCF does not include portfolio transaction costs incurred by the fund, and these transaction costs will most likely be higher for this fund, as it requires periodic re-balancing to ensure less volatile stocks receive larger weightings.

The post 3 low-cost ETFs to consider for your ISA appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Corporate governance

This is always an important factor in choosing an investment but is especially critical when it comes to investing on the AIM, where corporate governance standards are significantly more relaxed than on the main market and there are thousands of examples of management teams running roughshod over minority investors.

So what things should you look for to ensure an AIM-listed company is respecting corporate governance standards? The first step is the board of directors. The board should ideally be majority independent non-executive directors, who in a perfect world will be more likely to stand up to management if they propose something at odds with the interests of minority shareholders.

Another key standard is insider ownership. We all love a company where management has a hefty chunk of their wealth tied up in shares but the AIM is rife with firms where a single shareholder owns more than 50% of voting rights in the company. Just ask shareholders of Sports Direct for a real life example of why this can be terrible for minority investors.

Profitability

This should be common sense but it’s amazing how many people get suckered in by the latest hot AIM share that promises life-changing opportunities are right around the corner for shareholders. We all know how rarely they wind up a fairy tale for these investors.  

In the same vein as profitability, investors should also keep a close watch on a company’s cash flow statement. The more cynical among us will want to do this to look for fishy accounting practices that could indicate fraud.

The more trusting investor will still want to look for positive free cash flow as it indicates the company has a viable business model and is able to fund expansion through retained earnings. Relying on internal funding is important for investors because it lessens the chances of shareholder dilution through rights issues. This is a particularly common problem in the resources sector, where early shareholders can see their holdings winnowed down significantly over time if a company continues to tap shareholders to fund investment in mines, oil wells etc.

Balance sheet

Again, a healthy balance sheet is something investors should look for in all potential investments but is particularly important when looking at small caps such as those on the AIM. Low levels of debt and healthy doses of cash point to a business that is in rude health and will be able to hopefully both continue expanding and return cash to shareholders.

While these tips won’t remove all the risk of investing on the AIM, looking for good corporate governance standards, solid profitability and a healthy balance sheet will certainly go a long way towards weeding out the riskiest investment opportunities. And for all its risk, the AIM can oftentimes be great places to find under-researched, under-valued small-caps with a bright future, the perfect complement for your ISA.

The post 3 top tips for AIM investing in your ISA appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Including the PEPs and TESSAs that preceded them, these tax-free investment vehicles have been in existence for 30 years now, with PEPs first introduced in the 1986 budget and the complementary TESSAs joining them in 1990.

It’s a fair guess that a good number of those ISA millionaires have been in it right from the start, transferred their PEPs and TESSAs to ISAs, and used their full allowances every year. And if that’s what can be achieved in 30 years, just imagine what heights you could reach over a full lifetime of investing!

What 30 years can bring

First, let’s think about what you might accumulate over the next 30 years and see if you could match these ISA millionaires. We’ll assume you’re able to use up your entire ISA allowance of £15,240 every year, investing it in 12 monthly installments of £1,270. How much would that bring in?

It all depends on the annual rate of return you can get, and if you stashed your savings in a cash ISA offering 2% annual interest (and a lot of them offer less than that), you’d finish your 30-year stretch with approximately £625,000 in the bag. Of that, £457,000 would be your own contributions with the remaining £168,000 coming from compound interest, and you might not think that’s too bad.

But what if you invest in shares instead, and reinvest any dividends you earn? An average annual return of 6% per year including dividends isn’t at all an unreasonable expectation (and I’d say it’s probably quite conservative). Some years you’d do better than that, others not as good, and some years you’d actually lose money — but with 30 years at your disposal, those short-term ups and downs will even-out and it’s the long-term average that counts.

With an average of 6% a year from shares, your ISA value would grow to around £1,244,000, easily getting you into the ISA millionaires club. What’s more, instead of the £168,000 in interest from a cash ISA, you’d be £787,000 in profit from share price appreciation and reinvested dividends!

A full life of investing

Now let’s extend our ‘what if?’ thinking a little further. It’s obviously unrealistic for the vast majority of us to use our full ISA allowance from the day we reach 18, so I’ll go with the following scenario…

Firstly, your parents start a Junior ISA for you when you’re born and invest the full £4,080 annual allowance, then when you reach 18 it converts to a standard ISA and you manage to invest £500 a month until you reach the age of 30. From then on, you use up your full allowance every year for the next 30 years. How much do you think you might have to celebrate your 60th birthday, assuming the same 6% return each year from shares? Go on, have a guess before you look down and find out…

Would you be surprised to learn that, through your ISA investments, you’d end up with a cool £3.35m, all tax free? The same plan, only invested in a 2% cash ISA, would fall short of the million pound target with a total of just £975,000.

Convinced yet?

The lesson is clear. If you want to reach millionaire status, invest as much of your annual ISA allowance as you can, start as early as you can — and put it in shares!

The post How To Join Britain’s ISA Millionaires appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Investing for your children is a far better use of your money than buying yet more gadgets and gizmos. The New Year is the perfect time to get started as thoughts turn to the future. One thing is certain – your children’s prospects will be a lot brighter if you start investing on their behalf as early as you can.

Junior school

Many families set up savings accounts for their children to get them into the habit of setting a little pocket money aside. That’s fine, but it isn’t enough. Given today’s dismal savings rates, cash will never amount to much. Over the longer run, the stock market should be far more rewarding.

Setting up a tax-efficient Junior Isa is the ideal way to invest in stocks and shares. Families and friends can contribute up to £4,080 in the current tax year, with all the dividend income and capital gains free of tax. The child gets a new allowance next year as well.

Kids are alright

People who think investing is too risky for children have things the wrong way round. Children are the ideal investors because they have one big advantage over adults – time is on their side. Time is the investor’s most reliable friend, because it allows them to look beyond short-term share price swings and cash-in on long-term outperformance. 

While stock markets can be volatile in the short run, they should deliver far better returns than cash over 18 years or longer, which makes children the ultimate comeback kids. In fact, you can turn market volatility to their advantage. If you commit to a regular monthly contribution you actually benefit when share prices fall, as you pick up more stock for the same payment. That contribution is worth more when markets recover.

Be young, be happy, invest Foolishly

You can invest in stocks and shares through an actively-managed fund, index tracker or portfolio of individual stocks and shares. A handful of fund managers have set up their own Junior Isa portfolios, notably investment companies such as Aberdeen, Alliance Trust, Baillie Gifford, F&C, JP Morgan and Witan. You can invest from as little as £25 a month, or lump sums from £250.

The downside is that many only offer a limited range of funds. You may prefer to set up your own portfolio via an investment platform, which should leave you free to invest in any fund or stock you like. You can’t touch the money yourself, but you can manage it on your children’s behalf until they turn 16, when they can take it over if they wish. At 18, the child is free to withdraw their money or convert it into an adult Isa and retain all its tax advantages.

A Junior Isa is a great way to cover the costs of early adult life, such as tuition fees, a property deposit or buying a car. Your children may also have learned the joys of investing, a skill that will benefit them for a lifetime.

The post Set Your Children Up For Life With A Junior ISA appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

For the majority of investors, then, the best way to invest and build wealth is to buy a low-cost tracker fund. A tracker fund gives you a ready made, well-diversified portfolio at a low cost and minimal effort. Many investors choose to buy a tracker that invests in the UK’s leading index, the FTSE 100.

However, while the FTSE 100 is the UK’s leading index, its performance leaves a lot to be desired. Indeed, over the past two decades the FTSE 100 has produced a total return of around 5.8% per annum, and that’s including fees and dividends.

On the other hand, over the past decade the FTSE 250 has produced a total return of 11.5% per annum. £1,000 invested in the FTSE 250 ten years ago would be worth £3,258 today. A similar investment in the FTSE 100 would be worth only £1,925 today.

Global index

One of the biggest problems with the FTSE 100 is the fact that the index isn’t really a marker of UK economic strength. More than three-quarters of the index’s profits come from outside of the UK, making it a global index that’s extremely sensitive to global economic shocks.

What’s more, the FTSE 100 is a market cap weighted index, which means that it can become extremely bias towards one sector during times of market excess. For example, during the late 90s, the FTSE 100 became a tech index, as the valuations of technology companies exploded, eclipsing the performance of other sectors.

Then again, during 2007 the banking sector took over the index. Ultimately, when both of these bubbles popped, the FTSE 100 couldn’t escape the turbulence. 

In comparison, the FTSE 250 is an index consisting of the 101st to the 350th largest companies listed on the London Stock Exchange, and, as a barometer of UK economic performance, is more accurate than the FTSE 100. 

You see, the FTSE 250 is a UK index. Almost all of the companies listed on the index are UK born and bred. Moreover, due to the size and diversification of the FTSE 250, there’s less volatility for investors to deal with.  

Figures speak for themselves

When comparing the FTSE 100 and FTSE 250, the numbers really do speak for themselves. Over the past 16 years, the FTSE 250 has risen by over 202%, excluding dividends. However, over the same period the FTSE 100 has only gained a dismal 1.8% — that’s not a typo.

After accounting for inflation of 3.6% per annum over the period according to the retail price index, the FTSE 100 has returned 2.2% per annum in real terms since 2005, including fees and dividends. Over the same period, the larger FTSE 250 has produced a real return of 7.9% per annum.

The post As The FTSE 100 Struggles, The Real Money Is Being Made In The FTSE 250! appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Thinking time is precious

You might think I’m barking. Why am I giving up valuable vacation time in order to think boring thoughts about money and investments?
 
For several reasons, in short.

First — and call me sad — I don’t find it boring. Second, it needs doing: financial and investment plans don’t create themselves. And third, because I find holidays and short breaks away to be ideal times to let the mind wander, and think about all this stuff that needs thinking about.
 
Plus, of course, it’s an ideal time to catch up on some of the reading that informs that thinking (and, in this digital age, some of the online videos and blogs I’ve bookmarked or downloaded over the last few months).
 
Put another way, free from the day-to-day pressures of the daily grind, it’s possible to not only put some quality time aside, but also use that time to reach better and hopefully more profitable decisions.

Taxing decisions

Decisions about what, exactly?
 
In part, as you’d expect at the start of a new tax year, some of the thinking is about how best to take advantage of the various tax shelters and wrappers that the government offers as an incentive to save.
 
For me, these chiefly revolve around pensions savings and ISA allowances — as I’ve never found Venture Capital Trusts to my taste, although that’s a purely personal preference. Likewise, while AIM shares can be a handy way of sidestepping inheritance tax, that isn’t high on my priorities at the moment.

Pension planning

Take pension provision, for instance. Every year, the pundits in the media point to boosting pension contributions as a way of minimising higher-rate tax liability.
 
As advice, it’s absolutely spot-on. But completely useless if you get to the end of March next year, and don’t have ready cash in hand to take advantage of the government’s largesse.
 
In which case, instead of putting money aside to help secure a comfortable old age, you’ll be steeling yourself for another dollop of your hard-earned dosh going to the taxman.
 
My own approach — and there’s nothing particularly scientific about this, it’s just what I happen to do — is to squirrel away a fixed sum each month, and build up (or budget for) a lump sum that can be thrown at the pension towards the end of the tax year, when it’s possible to take better stab at end-of-year tax liability.

ISA conundrum

Something else that I’ve been thinking through is how I plan to take advantage of the coming year’s ISA allowance.
 
There are various things to think about here. Which ISA ‘wrapper’, for instance, and from which provider? What investments to place inside that wrapper? And how to phase the contributions that I wish to make to the ISA?
 
The latter, I think, is particularly important — because I find that if I don’t put so much aside each month, it can be difficult to find lump-sum investments towards the end of the tax year.

In short, as with pension planning, I tend to favour a mixture of regular savings and lump-sum payments, with lump-sum payments timed to take advantage of turbulent market conditions.

The bigger picture

It’s not all about the coming tax year, of course. A short break away is a good time to reflect on questions that are quite unconnected with tax.
 
Broad-brush questions regarding asset allocation, for instance. Take my S&P 500 and Nikkei 225 index trackers, which have performed well. Should I continue to hold — or switch to other markets? In my opinion, Europe is certainly more reasonably rated at the moment, thanks to euro-deflation and the antics of the new Greek government.
 
And what of those shares on my ‘must investigate’ list? With nothing to do before the evening meal, now’s a good time to check a few out.

Plan, don’t panic

Sad? Well, possibly. But holidays are a time for self-indulgence, and — frankly — I’m enjoying what I’m doing. You might not enjoy it, or might not enjoy it as much.
 
But the real point is this: it’s better to have a plan, and a strategy, than to not have a plan or strategy. Last-minute rushed investment decisions are never as good as those that have benefited from careful thought and research.
 
Don’t leave it too late. Put some time aside, and plan accordingly.

The post The Best Investment You’ll Ever Make appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

This is the season

Now I know what you’re thinking…
 
Didn’t we just go through ‘ISA season’ and all those articles, advertisements and pitches from pundits urging us to open an ISA before the April 5 deadline?
 
Yes – but a brand-new tax year started on Monday, which means you have just been granted a fresh year’s allowance!
 
And in my opinion, if you plan to put more money into your ISA and can afford to do so, there’s no point waiting 11 months and a couple of dozen days to do so – however much ISA season has become ingrained as make-your-mind-up time for ISA investors.
 
Rather, make your mind up now, if you can.

Three good reasons to get going

Of course, most people don’t have the ISA allowance – £15,240 for this year – just lying around in cash, waiting to be deployed when the starting gun is fired on a new tax year.
 
But some do – and we know that many others will save up a lump sum over the course of the year before looking to deploy it come Spring 2016, because that’s why the last-minute ISA frenzy happens after all.
 
To which I say: what are you waiting for?

1. Enjoy immediate tax protection

The big benefit of holding shares within the tax-resistant walls of an ISA accrues over decades, as your investments grow unthreatened by capital gains tax (CGT).
 
But if you’re a higher-rate taxpayer, you’ll also benefit from protecting any income your shares pay from tax – and that benefit starts from the moment you receive your first dividend.
 
In fact, if you’re a higher-rate or additional-rate taxpayer and you hold shares that pay dividends outside of an under-filled ISA then you’re throwing money away.
 
Higher-rate taxpayers pay an effective tax rate of 25% on their dividend income, while those with gross incomes over £150,000 will have to surrender around 30% of their dividend income to HMRC.
 
If you were invested in a higher-yielding share like Royal Dutch Shell (LSE: RDSB) then this would amount to over £200 in tax that you could have avoided by getting your shares into an ISA at the start of the tax year.

Why delay?

2. The upcoming General Election

ISAs are very popular savings vehicles, and I don’t expect any of the parties to immediately tinker with them should they win power in the General Election on May 7^th.
 
However, there’s a related area that I do think some parties are keen to meddle with, and that’s capital gains tax – whether the tax rate itself, the annual CGT tax-free allowance (£11,100) or both.
 
This is relevant to filling your ISA because a lot of people raise their new ISA contributions by selling a sufficient number of unsheltered shares they hold in ordinary dealing accounts.
 
Indeed, every year brokers drum up a bit of extra commission by encouraging people to do what for quirky reasons is called “Bed and ISA-ing”.
 
This sees investors selling shares that show capital gains (but not enough to put them over their annual CGT tax-free allowance) and then repurchasing the shares within an ISA.

It’s a sound piece of tax-planning strategy, but it could be threatened if noises from some corners about tinkering or even scrapping the way the CGT regime works amounts to anything.
 
I won’t delve into whether reviewing the CGT regime is right or fair or a vote winner. That’s not my job.
 
However, from an investing standpoint, given that there’s nothing to lose by Bed-and-ISA-ing today if you can…
 
Why delay?

3. An extra year of tax-free compound interest

To me, it never made much sense to have your funds sitting in cash for the best part of 12 months until a few days before the panicky end of the ISA season.
 
But with interest rates near zero and your cash earning near zilch as well, it makes no sense.
 
If you’re investing instead in shares in the hope of a meaningful positive return, then it is wise to be invested as soon and for as long as possible.
 
For one thing, we may think in terms of annual deadlines, but the market doesn’t work that way.
 
Every day it goes up and down, and the fact is that if you wait until, say, 5 April 2016 to fill your ISA, then you may have missed a year’s gains.
 
This can make a big difference over the long term.
 
As an illustration: 

• £15,240 growing at 10% for 20 years amounts to £102,527
• £15,240 growing at 10% for 19 years sees that final sum reduced to £93,206

Of course it’s perfectly possible that the market could go down between now and April 2016.
 
But that risk is always there with shares.
 
Most years the market goes up, and so most of the time it makes sense to invest as soon as you have the planned funds available – delaying only means you’re likely to forgo gains.
 
Given that in an ISA those gains are tax-free, I must say I’m surprised you’re still reading me, as opposed to hotfooting it back to your online broker, debit card in hand…
 
Why delay?

The post Are You 362 Days Ahead Of The Game? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Owain owns shares in Royal Dutch Shell

However, which one is the more preferable of the two? Is the simplicity and flexibility of an ISA the more appealing? Or, do the tax advantages of a SIPP outweigh its relative rigidity?

Tax Differences

When it comes to tax advantages, SIPPs are viewed as the clear winner. That’s because, just like a personal pension, you receive tax relief on all sums invested through a SIPP. So, for example, if you are a basic tax rate payer, for every £80 you invest via a SIPP, the government will repay the £20 you would have paid in tax, thereby giving you £100 to invest. ISAs, meanwhile, offer no such tax advantage and are instead invested with post-tax income, thereby meaning that if you invest £80, the government repays no tax. As such, it is likely that a SIPP will grow faster and to a higher terminal value than an ISA, assuming they are invested in the same stocks.

Of course, while SIPP contributions have the advantage of being tax-free, withdrawals are taxed at an individual’s applicable income tax rate. This excludes the 25% lump sum that can be withdrawn tax free at age 55, but in the case of an ISA all withdrawals are tax free. As such, the tax benefit of a SIPP is largely negated by the tax on withdrawals, although for many people their tax rate in retirement may be lower than during their working lives, thereby making SIPPs more appealing compared to ISAs from a tax perspective.

Employer Contributions

For many employees, a SIPP is more preferable to an ISA because their employer makes a monthly contribution to their pension. For many people, this may be into a bog standard personal pension, but a number of employers will happily pay the money into a SIPP instead. As such, contributing 5% of your salary, for example, may be matched by your employer, which clearly gives SIPPs a major advantage over ISAs, into which employers will not make a direct contribution.

Flexibility

However, where ISAs have a major advantage over SIPPs is with regards to their flexibility. That’s because the money in an ISA can be withdrawn at any time to be used to buy a house, car, or for anything else you decide. This can be extremely useful – especially for younger people or individuals with less secure employment situations. SIPPs, meanwhile, cannot be drawn on until you are 55 (57 from 2028) and, looking ahead, this figure could realistically rise as the government seeks to tighten up the rules on SIPPs.

Rule Changes

In fact, the rules on pensions change so frequently that it is nigh on impossible to accurately predict which one will be the most effective way to invest over the long term. For example, in the last parliament alone, the present government has more than doubled the annual ISA allowance and at the same time has shrunk the amount that can be paid into SIPPs each year. During the next parliament and beyond there will inevitably be a number of other changes, which makes having both a SIPP and an ISA the most logical and prudent option.

Certainly, one may prove to be better than the other in your lifetime but, at the present time, that remains a known unknown. As such, having one of each makes sense for most people.

The post ISAs vs SIPPs: Which One Is Best For You? appeared first on The Twelfth Magpie.

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One of the most appealing aspects of Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is its exposure to the Asian economy. Certainly, this has helped it to come through the credit crunch in a relatively strong position and, looking ahead, the potential for Chinese stimulus means that Standard Chartered looks set to deliver strong bottom line growth over the medium term.

And, while the bank has a new management team this year which will inevitably make changes and restructure parts of the business, it is still forecast to post earnings growth of 14% next year. That’s double the wider market growth rate and, despite this, Standard Chartered trades on a price to earnings (P/E) ratio of just 11.2 versus 16 for the FTSE 100. This indicates that an upward rerating is very much on the cards for Standard Chartered.

Old Mutual

2015 has been a stunning year for investors in Old Mutual (LSE: OML), with the diversified financial company seeing its share price rise by 19%, while the FTSE 100 is up just 4% year-to-date. Despite this, Old Mutual still offers excellent value for money, with it having a price to earnings growth (PEG) ratio of just 0.9 and, as such, its share price could continue its strong recent performance.

And, even though Old Mutual’s share price could be somewhat volatile over the next few months, as evidenced by a beta of 1.4, the company has a strong income appeal that should offer support in the short to medium term. In fact, Old Mutual has increased dividends in each of the last five years and, with a dividend coverage ratio of 2, its current yield of 4.3% looks very sustainable.

Legal & General

With UK interest rates set to stay low over the next few years, companies that offer great yields and impressive dividend growth prospects could see their share prices rise significantly. One such stock is Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US), which currently offers a yield of 4.7% and is forecast to increase dividends per share at an annualised rate of 13.5% over the next two years.

Of course, this rate of dividend growth is hardly surprising, since Legal & General has increased dividends per share in each of the last four years, with them rising from 4.75p per share in 2010 to 11.75p last year. That’s a rise of almost 2.5 times in just four years and, with investors still on the hunt for great yields, Legal & General could see investor sentiment surge and help to drive its share price northwards.

The post 3 Hot Finance Stocks For Your ISA: Standard Chartered PLC, Old Mutual plc And Legal & General Group Plc appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Old Mutual and Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.