Which Isa is best for your client, based on their age?

The AIC has said there are several particular investment trusts which would work best for different age groups, whether someone is on the hunt for growth or income - or a mixture of both.

1) The young ones

The Junior Isa allowance stands at £9,000 for each tax year.

The average parent saved £1,133 into these accounts in the 2020-21 tax year, according to the latest HMRC figures available. 

When it comes to investing for youngsters, the Junior Isa is a great place to start but it is important to consider how best to build up that money, according to financial advisers and wealth managers.

Speaking to the AIC, Paul Chilver, associate and financial planning manager at Birkett Long, said: “Younger investors who have a longer-term investment horizon can take more investment risk.

Traditionally the investment trust sector has been very popular when it comes to saving for children.Interactive Investor

"My first suggestion is an Asian smaller companies investment trust – Fidelity Asian Values.  This has an excellent long-term track record and is well diversified with its highest weightings to Chinese, Indian and Indonesian equities."

The old and the new

Another investment company - the F&C Investment Trust, was hailed by Jim Harrison, director at Master Adviser, as knowing "all about longevity". Given it has been around since 1879, young investors in the £5.4bn global trust "can take a longer-term view, and look for a broad spread of underlying assets".

Chilver also likes the relatively new trust – the Odyssean Investment Trust – which is approaching its fifth anniversary and focuses on UK smaller companies - again, as a long-term play. 

Generally, most investment advisers cited equities as a long-term growth investment strategy for the Jisa, with investment trusts focusing globally, or in Asia, as capturing that long-term growth. 

This has been matched with analysis by Interactive Investors into Junior Isa holdings on its platform, which showed that parents on its platform have often opted for investment trust holdings within their child's portfolio.

According to Interactive Investor: "Traditionally the investment trust sector has been very popular when it comes to saving for children, with some great options."

Similarly, it highlighted that actively managed funds dominate first and second place: Fundsmith Equity and Scottish Mortgage Investment Trust.

Three investment trusts make the top 10 most held stocks, with F&C and Alliance Trust joining Scottish Mortgage, as the table below shows.

Most held Junior ISA stocks on interactive investor overall at 31 January 2023

Avoiding cash

Analysis of Jisa holders on its platform revealed there are 1,211 Jisa pots worth between £50,000- £100,000, with an average age of 13 and a half.

But cash Jisas, which are still the national default, "won't cut it", according to Myron Jobson, senior personal finance analyst at Interactive Investor.

He said: "Cash Jisas are frankly pointless other than as an option for teenagers approaching adulthood who might shortly need to use their pot and therefore want to remove the short-term risk of a sudden loss of value.

"Most Jisas are going to be inherently very long term, because they cannot be accessed until the child is 18, there is ample time for short-term bumps in stock markets to be ironed out.”

2) Middle-aged investors

The adult Isa annual allowance is £20,000 - but again, where should these investors be putting their money, given the conflicting needs of growth and income generation. 

For Master Adviser's Jim Harrison, although middle-aged investors might not yet be using Isas to supplement their earned income, they ought to be building towards that target.

He said: "Starting to buy an income stream now, and reinvesting dividends until they are needed, is an alternative to the growth-only option, and I’d suggest taking a look at Dunedin Income Growth.

The good news is that there are still some great options to consider.Genevra Banszky von Ambroz

"A healthy dividend yield of 4.3 per cent, rock solid dividend cover of 1.24 years, and a board who are focused on the sustainability of that dividend should give a long-term investor great comfort.

“For international exposure, Murray International should be in every investor’s portfolio, not just the middle-aged. An above average dividend yield at 4.1 per cent, almost a full year’s revenue reserves and capital growth in addition to the dividends make this an attractive choice.”

Genevra Banszky von Ambroz, partner, investment management at Evelyn Partners, said: “Us millennials are in our 30s and 40s now. Most of us have many more financial and personal commitments than we did in our 20s, and our risk appetites have moderated as a result.

"The good news is that there are still some great options to consider in the investment company universe.

"Someone looking for a core, diversified global equity fund might consider Alliance Trust."

3) Retired investors

With little to no employment-related income, or maybe just a little from childcare, part-time work or non-executive directorships, many people of pensionable age will be looking to their investments to supplement any pension income they might have.

For Banszky von Ambroz, finding that income is therefore paramount.

She advocated International Public Partnerships, stating: "This is a very well-established company with a long track record of delivering a diversified portfolio of predominantly operational social infrastructure projects across the UK, Europe, North America and Australia.

"Its underlying assets have strong inflation correlation and support an attractive covered dividend."

I am making the assumption that ‘boomers’ are likely to be looking for retirement income.Paul Chilver, Birkett Long

But as many pensioners are more likely to prefer lower-risk investments, and want to focus on capital preservation, she also advised pointing clients towards Capital Gearing Trust, managed by Peter Spiller since 1982.

She said: "In recent years, he has been joined by co-managers Alastair Laing and Chris Clothier.

"The character of the company remains very much the same, a conservatively managed portfolio of conventional and index-linked sovereign bonds, corporate bonds, preference shares, equities and funds, with strong representation from investment companies.”

Paul Chilver of Birkett Long, said: “For my final two suggestions I am making the assumption that ‘boomers’ are likely to be looking for retirement income."

His top picks are:

• Edinburgh Investment Trust, which is in the UK equity income sector. The trust currently pays a dividend yield of 3.8 per cent.
• The Securities Trust of Scotland, in the Global Equity Income sector. This targets a rising dividend and is managed by James Harries of Troy Asset Management, who has a long track record investing in global equities with an income objective. The current yield is 2.7 per cent.

Harrison of Master Adviser, agreed: “Boomers are the bracket most likely to be drawing income, or at least preparing to. High-yield managers might not like me for this, but this is an age where reliability and sustainability is more important than pushing the envelope on yield."

He said he liked Invesco Bond Income Plus and Shires Income as they have a broad spread of debt and strong income generation.

Have your say

What are your clients' proclivities when it comes to Isa investing? Let us know by emailing simoney.kyriakou@ft.com or tweeting @moorgatemermaid