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Locking money away

So, with a combination of savings rates which are becoming more competitive compared with inflation and clients reluctant to take investment risk, we can expect significant sums to be invested in cash Isas between now and the end of April as clients look to use up both this year’s cash Isa allowance of £5340 if they have not already, and then next year’s allowance of £5640.

Of course, money invested in cash Isas now can always be switched into stocks and shares Isas in the future. IFAs can effectively manage such a move for their clients. However, there is a danger that for many people, especially those making their own investment decisions, that they will look to switch from cash to stocks and shares only when they have restored confidence in the stock market. To put it another way, they are more likely to invest in equities when stock market gains have already been made and perhaps just as shares are about to fall again.

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For those investors who have been using their stocks and shares Isa allowance over the past 12 months, their focus has been predominantly on lower risk investments such as good quality fixed interest and cautious managed funds, or mixed investment 20 per cent to 60 per cent shares funds if you prefer.

We are now seeing more interest in equity income funds, which is positive as they are paying decent levels of income and can form a core part of many client portfolios. This increased activity in equity income funds is also spreading to overseas equity income offerings resulting in some investment companies rushing to launch new products. However, there is still a distinct lack of interest in higher risk equity and fixed interest sectors where there is potentially the best value, this despite the bounce we have witnessed to date in 2012.

As we approach the end of the tax year we can still expect investors to be focused on more cautious assets, although perhaps with signs that some are now dipping their toes into riskier areas, particularly if markets continue to push upwards.

As any IFA will tell you, the right approach, of course, is not a particular asset class or fund but rather having the right mix of investments to meet a client’s overall financial objectives and attitude to risk. Unfortunately those investors who make their own decisions without having an IFA to guide them often do not appreciate this and make investment decisions based on short-term past performance and driven by greed or fear. This is why we saw increased interest in gilt funds toward the back end of 2011.