Four ways to freshen up your ISA

The start of a new tax year is the perfect excuse to check your ISA and see if your investments are going to plan.

It may be time to reassess how your investments can work best for you. Circumstances and priorities can change, so it’s important to revisit your goals and adjust your plan if necessary.

Here are four steps to consider. They shouldn’t consume too much of your time, and your efforts could soon pay off.

1. Investment goal achieved, have you prepared for the next one?

In your early years of investing, you may have been working towards a specific goal. You might have been saving to purchase your first home or you were planning to have children. Once you achieve such goals, it’s common to not bother creating a new investment plan.

By forgetting to reset your plan, you run the risk of either lacking an incentive to keep investing or taking inappropriate risks.

For example, someone who was saving for a house deposit over a five-year period might have been cautious as they didn’t want to lose money. Once they’re on the property ladder, their new goal might be to save up for to pay for their child to attend university in 10 years’ time.

Given the much longer period than the house goal, it might be prudent to consider higher risk investments for the university goal because there is time to ride out any stock market ups and downs. Simply sticking to cautious investments could see the individual make smaller returns.

It’s important to make the right choices for each goal and not follow a one-size-fits-all approach.

2. Make sure your investment plan hasn’t veered off track

There is a good chance the past year came and went without any dramatic life alterations. However, the same may not be true for your investments.

Certain areas of the market might have done better than others. This could mean certain investments in your ISA have grown much larger than others.

You might have originally decided on 60% of your portfolio in equities and 40% in bonds. If equities did well and bonds struggled, the balance might now sit as three quarters equities and one quarter bonds even though you didn’t make any manual changes.

The market movement has made the risk profile of your portfolio different to your original plan. One way to get back on track is to rebalance by selling part of your equity holding and using the proceeds to buy more bonds.

3. Can you afford to pay more into your ISA?

A passing year could mean a pay raise or another change that leaves you with a bit more wiggle room in the budget. That’s the perfect reason to think about increasing your investment contributions.

Someone would need to put £1,666 every month into their ISA to use up their full £20,000 annual allowance. We don’t all have that cash to spare, but much smaller amounts can still work their magic.

Source: AJ Bell, based on 5% annual investment growth after charges

For example, investing £50 a month and achieving 5% annual investment returns after charges would generate a pot worth £4,142 after five years. If the monthly contribution were marginally higher at £75, the pot would be worth £6,213 after five years.

That’s a significant difference, adding more than £2,000 to your wealth for making a minor adjustment to your contributions.

4. How to reduce costs and charges on your investments

It’s important to be aware of the costs and charges associated with investing. Over time they can add up, and there are ways to minimise them.

Buying or selling investments incurs a dealing charge. At AJ Bell, you pay £5 each time you buy or sell a share, investment trust or ETF. Someone looking to repeatedly invest in the same company, investment trust or ETF can save money as dealing charges are only £1.50 when using our regular investment service.

Fund management charges can vary depending on what you’re investing in. Actively managed funds, where experts decide what goes in and out of a portfolio, often have higher fees than passively managed funds, which track a specific index.

Actively managed funds aim to outperform the market but there is no guarantee of success. Research by AJ Bell in 2024 found just one third of active funds had beaten the average passive fund in their sector across the last decade.

Passive funds are growing in popularity among UK investors because they tend to have lower charges. They are an easy and efficient way to get exposure to specific parts of the market – and that might be all certain investors want.