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By Carl Lamb | Published Feb 23, 2012

Spring cleaning your portfolio

Springtime traditionally sees the financial services industry go into overdrive as investors seize the opportunity to maximise all their available tax reliefs prior to the year-end in April. This pressure has a knock-on effect that goes beyond ensuring that all the Isa allowances have been maximised; it is the perfect time for investors to review all of the vehicles they are using to build their portfolio.

Isas are the name of the game for many investors, but there is a much wider range of options out there and active management is the key to getting the most out of every investment, whatever the size or complexity.

Even simple cash deposit accounts benefit from a regular review. The best rates out there frequently come as part of a bonus package offering a special rate for an introductory period. Once this rate has expired, the savvy investor needs to review the market anew. Latest indications from the US are that interest rates will remain static there until at least 2014 so it may be likely that UK banks will follow their lead. Fixed-rate accounts are available for limited periods and the longer the term offered, the better the rate is likely to be.

Another popular investment route is provided by National Savings. These index-linked certificates offer a fixed rate return at RPI plus 0.25 of a percentage point over a five-year period – but their availability is generally limited to a short spring season.

They tend to appear in April but last year were withdrawn by September – early-bird investors need to keep a sharp eye out for this juicy worm. Even when inflation levels are low, they may still offer a better rate of return than some cash on deposit options, provided they are held for the full five years. If they are cashed in early, the rate will be lower.

Optimising clients’ Isa allowances has to be a first priority for advisers. The tax relief benefits for both standard and higher rate taxpayers make this route a no-brainer. From April 2012, the full Isa allowance will increase to £11,280 (£5640 for cash Isas). Finding the right balance between cash Isas and stocks and shares Isas will depend on the investor’s attitude to risk; the proportion of the allowance used for stocks and shares Isas is only limited by the full allowance so the investor can use anything up to the full amount in a stocks and shares Isa – if he or she is comfortable with the associated risks.

Shopping around in the cash Isa market is critical. There are a wide range of rates out there for both new money and for transfers between Isas. Investors often overlook the benefits of transferring from one Isa to another. Many are lured into a particular Isa by a special bonus introductory rate which may drop to an uncompetitive level after the introductory period.


Unit trusts offer a good general investment vehicle – and they have one very specific extra benefit: a unit trust can be converted to use up a future Isa allowance. What this means for the investor is that if in any specific tax year new money is not available to save into an Isa, then the unit trust can fill the gap and reap the tax relief benefits. Another advantage of unit trusts has to be the flexibility in the way they are funded. While lump-sum investments are perfectly possible, regular monthly payments can be made into the fund, allowing pound-cost averaging to boost the long-term returns.

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