How to make your Isa a winner: Financial experts reveal their tips for becoming a successful investor

It's the high season for tax-free investing as the end of the financial year looms. But, as Rob Griffin writes, you need a plan

Investors in the fast lane: work your Isas hard and you could live the aspirational dream where luxury purchases such as a Ford Thunderbird are within your reach (Getty Images)

Isas may provide a tax-efficient to save but they don't offer a guaranteed route to riches. Although some investors boast portfolios worth more than £1m, plenty of others have struggled to make decent returns.

And it all comes down to how they run their accounts. Whether they are destined to become Isa winners or losers will depend on the choices they make every year.

We asked a string of independent financial advisers, fund managers and industry observers what strategies are needed to become a successful investor.

Strategy 1: find the best rates

Canny cash Isa holders already grasp the idea that they need to keep moving their money to ensure they get the best returns, because there can be a huge difference between the best and worst accounts, says Rachel Springall at the data provider Moneyfacts.

"The average rate across the lowest 10 variable-rate Isas is 0.38 per cent, but the average of the best-buy variable Isas is 1.51 per cent – four times as much. If anyone is considering a best-buy deal, they should act fast to snap it up; decent rates don't tend to hang around for very long."

Strategy 2: invest long term

Successful investors are comfortable with putting their money to work over periods of at least five years, says Brian Dennehy, managing director of FundExpert.co.uk. "It requires patience and an understanding that capital values are volatile, as we've seen so far in 2016. But the longer the investment time horizon, the less impact individual stock market cycles have on investment returns."

Strategy 3: know your goals

Knowing what you want from your investment is essential because it will influence the type of assets to which you want exposure, according to Adrian Lowcock, head of investing at Axa Wealth.

"Learn to recognise your changing attitude to risk and rein it in – and don't let emotion drive investment decisions," he advises. "When we are losing money, we get fearful and panic, which leads to making rash decisions such as selling instead of buying."

Strategy 4: diversify – but not too much

Darius McDermott, managing director of Chelsea Financial Services, warns against having all your investment eggs in one basket, such as holding everything in equities, and suggests diversification to reduce risk.

"However, at the other extreme are investors who hold so many different asset classes or funds that the impact of any individual part of their portfolio is diminished," he adds.

Strategy 5: avoid the hype

The investment world loves trends, and fund groups regularly market the latest "must haves" for portfolios. But the best advice is to see beyond the hype and ensure you're making sound decisions, says Patrick Connolly, a certified financial planner with Chase de Vere.

"Be particularly wary if a top-performing fund is being heavily promoted," he warns, "as this might mean that the fund size grows significantly, making it less flexible and even more difficult for the manager to maintain their performance."

Strategy 6: don't try to time the market

Trying to time your entry to – and exit from – markets if you think shares are heading up or down is virtually impossible, warns Mr McDermott. "It's time in the market that counts," he says. "Missing just a few of the best days can significantly impact your pot of money, so it's usually better to stay invested."

There is also a difference between the type of volatility we see in the markets now – and the risk of capital loss, points out Mr Dennehy. "Volatility is the natural movement of market capital values and only leads to a loss if investors are frightened into cashing in their investments when values dip."

Strategy 7: don't chase past performance

Last year's standout funds may be this year's disasters due to changing market sentiment, so it's important not to get swept along on a tide of misplaced optimism, according to Justin Modray, founder of Candid Financial Advice.

"The most common mistake I've seen is chasing past performance, which is when investors buy the top-performing funds without bothering to understand the risks – or the likelihood of such performance continuing in future," he says.

Strategy 8: monitor your investments and don't become too attached

You should regularly review your portfolio – at least once or twice a year – to make sure you are on track to reach your goals. If you only check your progress just before you retire, warns Mr McDermott.

"It's also important not to become emotionally attached," he adds. "We all get attached to things, but it is important not to get emotionally attached to an investment; you may hold on to an underperforming investment for too long and lose a lot of money."