Why There's No Rush To Buy

NOW THAT we are in the era of individual savings accounts (ISAs), we have much more freedom of choice when it comes to equity- linked investments. No longer do the rules restrict us to just the UK and European stock markets if we want to use our full allowance and take maximum advantage of the tax benefits as they did with personal equity plans.

Instead, we can put our money anywhere we want and in virtually any sort of fund, apart from venture capital trusts, and shelter the investment from capital gains and income tax.

If we choose to invest with a fund management group, then for the next five years it can also reclaim half the advanced corporation tax that companies pay on the dividends they distribute.

"But don't feel that you have to rush out and buy an ISA," says Stephen Lansdown, of Hargreaves Lansdown. "Many groups have yet to announce their plans, so it may be worthwhile waiting until you see what they have to offer."

Use the time to sort out your investment priorities. "Attitude to risk is the most important factor when it comes to making investment decisions, and this applies just as much with ISAs," advises Jo North of Pretty Financial. "A good independent financial adviser (IFA) can help you with this."

If you decide to use an IFA, he or she will look at your overall portfolio. If you don't want to use one, then there are several points to bear in mind.

"If you have been investing in PEPs in the past, then make sure that your ISA choice is complementary," says Roddy Kohn of Kohn Cougar. "What you want is a balanced portfolio, not overexposure to any particular markets. Always bear in mind that ISAs, just like PEPs, are intended for long-term investment."

"Also try to take out your ISA with a group that has a wide range of funds," says Jo North. "Over time, you may want to switch your investments as your priorities change and this will give you a greater degree of choice."

So where should you start. If you are new to equity investments, then Roddy Kohn suggests you could take a look at Norwich Union's CATmarked UK Growth fund or HSBC's FTSE All Share tracker fund as "the UK is likely to be one of the best growth areas this year. Some commentators are already forecasting that the stock market could rise to 7,200 in a year."

Stephen Lansdown also advises first-time investors to stick with UK or European funds for the time being. He points out "just because there is a wider choice with ISAs, you should not forget first principles. These are that your first investments should be at home where the risks are lower. Four years down the road, when your portfolio has grown, then you should consider investing elsewhere in the world".

If you are a very cautious investor or in need of income, then all the experts agree on the merits of the M&G corporate bond funds. Managed by Theodora Zemek, both the conventional and the high-yield funds have produced good performance records. Other than M&G, "Aberdeen Fixed Interest, Jupiter Income and Perpetual High Income should always be considered", says Stephen Lansdown.

"More adventurous investors should consider growth funds from groups such as Jupiter, Invesco, M&G, Fidelity, Schroder, Henderson, Gartmore and Save & Prosper" says Jo North. "I the best PEP managers are likely to be the best ISA managers."