ISA: How Moneyfarm Can Maximise Your £15,240 Allowance
Investing, in the traditional sense, has commonly been reserved for wealthy individuals who may pay a financial adviser. However, with interest rates at a record 0.25% low and inflation increasing by 0.6% to 1.8% in three months, considering how you generate and preserve wealth has never seemed more important. “Investing” doesn’t have to be a daunting prospect. Robo-advice has taken something "traditional" and made it accessible, understandable and cost-effective. Robo-advice is not risk-free, however. As you invest in the stock market, your investment is exposed to fluctuating market conditions, meaning the value of your investment can rise and fall. There are no guarantees.
Moneyfarm is one such robo-adviser who facilitates investment in Exchange Traded Funds (ETFs) by way of algorithmic, digital investment management. By sheltering your investments behind a Moneyfarm ISA, you can generate returns without paying tax.
What is a Stocks and Shares ISA?
A Stocks & Shares ISA is for individuals who want to invest in an investment product and shield dividends, interest and capital gains from tax. This type of ISA is typically considered to be a longer-term investment strategy, for anything around 5+ years. This is compared with a Cash ISA which is typically for lower band tax payers who are more risk averse, seeking short-term tax efficiency and perhaps saving for a holiday or wedding.
When should I use a Stocks & Shares ISA?
This usually boils down to your attitude to risk and tax status. If you’re a lower band tax payer it could be more worthwhile saving in a Cash ISA. If you have a reasonable tolerance for risk and understanding that investment returns move with the market, an investment in a Stocks & Shares ISA could be for you.
What are the key features of a Moneyfarm ISA?
The Moneyfarm Stocks and Shares ISA allows you to grow your savings over a medium-term without paying tax on the returns generated from your Moneyfarm portfolio. Furthermore, you can withdraw or transfer funds anytime.
The robo-advice concept centres around algorithmic allocation. A series of questions asked when registering an account determines your risk appetite. You are then allocated a risk-weighted portfolio in correspondence with your risk score.
Once you have completed the questionnaire, a trial portfolio will be created so you can visualise your investment and the returns that can be achieved. This gives you the opportunity to become familiar with your secure Moneyfarm dashboard interface; all before investing a penny. Your portfolio will be comprised of Exchange Traded Funds (ETFs). An ETF is a security which tracks an index of an asset – it’s a cost effective and primary security in a robo-adviser portfolio.
Discretionary investment management
With an investment in a Moneyfarm Stocks & Shares ISA you hand over the decision-making reigns to Moneyfarm. It will hold discretion over the adjustment of your portfolio of assets, striving to provide the best rate of return for your risk profile at all times. A skilled team of finance professionals monitor the market, constantly reviewing the ETFs you invest in.
Risk warning: Your capital is at risk. Investments can go down as well as up. You may get back less than originally invested.
What sort of returns can I get from Moneyfarm?
Moneyfarm allows you to open either a General Investment Account (GIA) or Stocks & Shares ISA. In either instance, you can set the parameters of your investment and visualise the expected performance before investing a penny.
Investment term: 5 Years
Principal investment: £15,000
Expected performance: +20.74%
Total tax-free returns: £3,110.43
This Moneyfarm portfolio is suitable for a balanced investor profile. Designed to achieve an above inflation return, this portfolio aims to minimise risk through diversification among different asset classes and regional exposures.NB: This is an example portfolio created for demonstration purposes. Your risk appetite may be different and so the actual return and compilation of the portfolio may be different.
Which rules govern the Moneyfarm ISA?
Guidelines are issued to all ISA plan managers at the start of each tax year, laying out the rules which must be abided by investors and plan managers when investing in any ISA type: Cash, Stocks & Shares, Innovative Finance ISA (IFISA).
- Subscription limitFor tax year 2016-17 the ISA subscription limit is £15,240. You cannot subscribe more than this amount to a single/mixture of ISA types, in the tax year.For tax year 2017-18 the subscription limit will increase to £20,000.You can subscribe all or some of your existing allowance to a Moneyfarm ISA.
- TransfersYou can transfer any amount of money from any old ISA type to any new ISA type, but you may need to liquidate the asset held, depending on the ISA type.You could transfer £20,000 in old Cash ISA subscriptions to a Moneyfarm Stocks & Shares ISA, but you would need to liquidate your Stocks & Shares ISA investment before transferring cash, as examples.
This transferral process will be handled between your existing ISA provider (whether Cash, Stocks & Shares or IFISA) and new ISA provider. You will be required to fill out a transfer form, but then the process will be in the hand of the ISA plan managers.
NB: Some providers will charge exit fees, so be sure to check with your plan manager before exiting.
With the rise of robo-advice in the U.K and further afield, a new opportunity for wealth creation has surfaced. This is not just for the sophisticated and experienced; robo-advice is designed to give everyone who is dissatisfied with the returns they receive on their investments and/or savings an alternative without the requisite knowledge and experience of having invested before. Moneyfarm facilitates a seamless transactional process for investors, especially those who may wish to utilise the Moneyfarm Stocks and Shares ISA.