"If I'd have known..." - lessons from ISA investors

If you're anything like me, investing in the stockmarket is something you keep putting off until you're feeling a bit more flush. Yet the benefits of starting to save earlier rather than later, even if it feels like a stretch, is one thing real life investors wish they had known before first investing in an ISA – according to a study by Hargreaves Lansdown.

So what else can we learn from those who've experienced the stockmarket roller coaster?

The survey, carried out by fund supermarket, Hargreaves Lansdown, quizzed 3,000 ISA clients last month about their experiences of their first ISA investment. Surprisingly many didn't dabble until middle age, with 64% aged 50 or over when they invested in their first ISA, while less than 5% were under age 35.

Aside from selecting the best performing funds of course, investors share what they'd wish they'd known before they entered the ISA market.

1. Start saving early in life even if you think you can't afford it
Figures from LIPPER show that if you saved £5 a day (£150 a month) into a top performing fund starting in April 1999 when ISAs were introduced, your investment would have been worth £68,900 by the end of January 2011, an average 16.2% return.

2. Existing shareholdings can be transferred into an ISA
Bed and ISA is the process where a share is sold and repurchased in an ISA, sheltering all the future gains and income from tax. The big benefit is you're use existing money or investments to take advantage of annual tax allowances rather than having to find new money. While the sale is chargeable to capital gains tax, any profits normally fall within the annual capital gains tax allowance (£10,100 for 2010/11 and 2011/12).

Selling shares at a loss will realise the loss which, once declared, you can carry forward and offset against any gains in the future, effectively increasing your future capital gains tax allowance.

3. The benefit of using the full allowance each year
Since 1999 a couple could have sheltered £181,200 from tax in ISAs. Pre-ISAs, a couple could have sheltered £369,600 from tax in PEP, TESSA and now ISAs if they've saved the maximum allowances since 1987.

The total contribution limit in this tax year is £10,200 and £10,680 from next tax year.

4. The option to sell and keep proceeds within the wrapper for re-investing when market conditions improve
ISAs held through fund supermarkets offer cash accounts, which enable you to sell and hold cash for as long as you like, or invest and hold in cash to drip feed into the market. The interest from a cash account in a stocks and shares ISA is paid net of a 20% charge to HMRC.

5. The high fees of investing directly in ISAs versus through a fund supermarket
The survey found 33% bought their first ISA direct with a fund group, yet taking this route can see investors hit with initial fees of up to 5.5% - equal to £561 on a £10,200 ISA subscription, which brings the total amount invested down to just £9,639. Opting to purchase funds through a fund supermarket with slash the fees and allow you to hold your investment in one place.

6. That the tax break would extend beyond when Tessas & PEPs were first introduced
The tax benefits of ISAs have now been ring-fenced indefinitely, which means your funds are protected from any changes in tax policies or your personal circumstances.
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