ISA's - Capital Guaranteed?

I've heard horror stories of people who have been saving through these tax-free vehicles from back when they were PEPs and TESSAs and heard how people have actually lost the principal in real terms compared to leaving your money with the building society.

Is there anyway to guarantee the principal with ISAs? I notice the Motley Fool recommends you buy an index tracker wrapped up in an ISA.

Has anyone gone down this route? Has your investment been safe? Is it better to buy a mini-cash ISA through a mutual building society than a FTSE-100 tracker?

I think I'd prefer to have a separate cash mini-ISA (£3000 annual limit) as a "rainy day" fund and then a stock/shares mini-ISA (£3000 annual limit) as an investment but I'd like to hear any opinions/comments people have first.

Thanks,

Alex

Reply to
alexrpeters
Loading thread data ...

Bitstring , from the wonderful person snipped-for-privacy@hotmail.com said

Guarantee against what, exactly? With a cash, or government bonds, ISA you should be guaranteed your capital won't fall, but inflation could still eat your lunch.

If you want safety first (against loss of capital, not against inflation) then yes, a cash ISA is safer. Trackers can track down just as well as up.

I think you're probably right.

Reply to
GSV Three Minds in a Can

The first thing to understand is that an ISA is only a 'wrapper' around whatever is inside it. The ISA wrapper is supposed to keep things tax-free but Gordon Brown has changed that to a degree. So if you have a stocks and shares ISA then your capital is at risk, but if you have a cash ISA then it isn't.

Then again, there are offerings from various firms which enable yo to buy a stocks and shares ISA with no risk to capital. They work on the basis that if an index that they relate to (e.g. FTSE 100) goes up you get a proportion of the growth and if it goes down you get your money back after say 6 years. The risk here is that you might have got a better return from the interest on a cash ISA. It's your call.

And those who have lost money probably took the money out when it looked bad instead of staying with it and hoping it'll come good in the end. Can't blame them, but this guaranteed their loss.

If you buy an index-tracking ISA and the index goes down so does it. Many people seem to think that a tracker is safe whereas an actively managed fund is not, but it's not so. They both have their risks. It's reasonably safe to say that the better active funds outstrip trackers, even after their higher charges. But you can still lose money with the best of them if the markets go pear-shaped. There's not a lot they can do about it. The measurement of the best funds a couple of years ago were those that made the least loss!

With the exception of the years 2000 to 2003 it's fair to say that the longterm investor does better in a stockmarket than in a deposit account - the ISA version or not. Much of this 'betterness' is due to the reinvested dividend payments which can often be as high as interest in a deposit account. But the divis may go up and the capital value may go down!

Forget talking about ISAs. Decide what type of investment you want and then decide if you want to ISA it.

Rob Grahamn

Reply to
Robin Graham

I see that L&G now have a "Protected Capital" product, which the fine print says is not guaranteed tro protect your capital.

If you want to protect your capital you have two options - stick with cash or buy gilts below par and hold them to redemption. You could also try index-linked gilts.

As Robin Graham has pointed out, the ISA is a tax-free wrapper. What is important is the product that you put inside that wrapper. Money that you will or may need should go into a cash product. Money which you will not need at short notice, or is for very long term savings can go into stock-market related products. Tracker funds are not the best investment. Try Equity Income funds instead.

Reply to
Terry Harper

Saw this in of all places - the Post Office ! I'm working from memory here and it wasn't high on my agenda, so needs checking out, but ISTR:

FTSE100 linked bond giving 110% of the increase in the FTSE with a guarantee of no loss - all if held for 5 years.

If available for an ISA, that seems a better alternative to a "tracker"

SS

Reply to
Simon Smith

But no dividends.

Reply to
Jonathan Bryce

I'm not sure that's available as an ISA though. If we're talking about guaranteed capital protection then I don't think a tracker is what you're after, as they can go down, even though they probably won't over

5 or 10 years. But try telling that to people who got a tracker 5 years ago!
Reply to
Alex

And doesn't the accumulated gain count as income in that last year?

Reply to
Terry Harper

In message , Terry Harper writes

Thats right, which could mess up quite a lot of peoples tax for that year, including a reduction in age allowance etc.,

Reply to
john boyle

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.