One of the main reasons to invest in an
Individual Savings Account (ISA) is that all of the growth is free of
Capital Gains Tax (CGT). This means that they can be used to accumulate a useful lump sum to put towards a specific goal or supplement your long-term savings.
The annual exempt amount – the total gains you can make before paying CGT − has recently been reduced to £3,000 and the rates increased to 18% for basic rate taxpayers and 24% for higher rate taxpayers. Even a relatively modest investment can give rise to a possible liability, but an easy way to mitigate the risk is to subscribe up to a maximum of
£20,000 per person, per year in a
As soon as the money is in the account you can invest it in different funds to build a simple yet diversified portfolio that has the potential to appreciate in value. A good starting point would be the Select 50, which includes a number of suitable options to choose from including the four highlighted below.
Dodge & Cox Worldwide Global Stock
The most natural source of long-term growth is the equity market, with the Dodge & Cox Worldwide Global Stock Fund being a great way to gain exposure. It has a value-focused portfolio of international shares that is skewed towards the cheaper areas outside of the US tech sector and is one of Tom Stevenson’s fund picks for 2025.
Dodge & Cox endeavour to provide a diversified portfolio of medium-to-large, well-established companies that appear to be temporarily undervalued, but have a favourable outlook for long-term growth. Its management team have operated through many economic cycles and have built up a track record that demonstrates evidence of a consistent process and long-term investment skill.
Over the last five years the GBP accumulation share class has generated an annualised return of 11.4%,1 but it is important to view it as a long-term holding of 10 years or more. Please note past performance is not a reliable indicator of future returns. The ongoing charges are 0.63% per annum, which is fairly typical for an actively managed international fund.
Rathbone Global Opportunities
A good complementary holding would be the Rathbone Global Opportunities Fund, which takes an out and out growth approach to the international developed markets and would have very little crossover with the Dodge & Cox mandate. Managers James Thomson and Sammy Dow aim to identify companies that are future winners and then blend them together into a concentrated portfolio.
They think that to be successful, a business must have to offer something that others can’t match – a star quality. It must also be easy to understand, different to its competitors, durable to change and difficult to imitate, as well as being able to grow rapidly without running out of money or overstretching its resources.
Over the last five years the S accumulation share class has generated an annualised return of 11.4%2 and as the fund is towards the upper end of the risk/return scale it should be viewed as a long-term investment of 10 years or more. Please note past performance is not a reliable indicator of future returns. The ongoing charges are 0.51% per annum.
Stewart Investors Asia Pacific Leaders
Another option would be to invest in a regional fund that specialises in an area like the Far East that is home to lots of fast growing businesses. A good example is Stewart Investors Asia Pacific Leaders that invests in high quality companies that are positioned to contribute to, and benefit from, sustainable development.
The manager has a long tradition of operating in the region and benefits from an experienced team including on-the-ground specialists. Their aim is to identify companies with resilient balance sheets, good franchises, a strong culture and a focus on sustainability.
Over the last five years the B accumulation share class has generated an annualised return of 6.5%3 and like the others should be seen as a long-term holding. Please note past performance is not a reliable indicator of future returns. The ongoing charges are 0.84% per annum, which reflects the higher costs of investing in the region.
Vanguard Global Small Cap Index Fund
Historical studies suggest that small cap stocks tend to outperform the large caps over the long-term, especially following periods of underperformance such as we have seen in the last few years. If you have a 10 year plus investment horizon and are comfortable with the higher volatility, then you could potentially take advantage by allocating some of your ISA to the Vanguard Global Small Cap Index Fund.
It is a passively managed option that aims to generate long-term capital growth by replicating the performance of the MSCI World Small Cap Index, which contains around 4,000 companies from different developed markets. Vanguard is a well-respected provider of these sorts of tracker funds and has built up a 15 year record on this particular mandate.
Over the last five years the GBP accumulation share class has generated an annualised return of 7.7%4, although the 12-month figures have often been double digit gains or losses. As you would expect from a tracker fund, the ongoing charges are a low 0.3%.
Source:
1,2,3,4 Fidelity International, 31 December 2024
|
(%) As at 31 Dec |
2019-2020 |
2020-2021 |
2021-2022 |
2022-2023 |
2023-2024 |
|---|---|---|---|---|---|
|
Dodge & Cox Worldwide Global Stock |
2.2 |
21.4 |
4.9 |
13.9 |
7.0 |
|
Rathbone Global Opportunities |
31.6 |
20.5 |
-20.4 |
18.3 |
17.5 |
|
Stewart Investors Asia Pacific Leaders |
24.2 |
12.9 |
-9.0 |
2.9 |
6.7 |
|
Vanguard Global Small Cap Index |
12.2 |
16.7 |
-8.6 |
9.3 |
9.9 |
Past performance is not a reliable indicator of future returns