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What Are the Key Considerations When Choosing Funds for Your ISA Investment?

Individual Savings Accounts (ISAs) are one of the UK’s most-popular saving schemes, and one of the few opportunities allowing investors to shelter income and gains from the taxman. But with over 3,000 funds available to investors, how do you choose which to invest in?

Individual Savings Accounts (ISAs) are one of the UK’s most-popular saving schemes, and one of the few opportunities allowing investors to shelter income and gains from the taxman. But with over 3,000 funds available to investors, how do you choose which to invest in?

The key considerations when choosing a fund for your ISA investment

When choosing the best fund for your ISA investment, you need to consider risk, diversification and whether it’s a passive or active management. Here we look at all of these areas in more detail.


Firstly, you need to decide how much risk you are prepared to take. If you aren’t sure, there are a number of risk questionnaires available online which will give you a steer in the right direction. This is not foolproof however, and you will also need to consider how much you can afford to lose and how long you intend to invest for. To understand how much risk an individual fund is taking, you should read the Key Investor Information Document which assigns each fund a risk score.


This describes the amount you are allocating to different types of investments and asset classes, and will - to a degree - depend on your own risk profile. For a medium risk investor, you might consider a mix of funds investing in shares and bonds. For someone with a higher risk profile, you might consider a mix of different country or sector specific equity funds.

Passive or active:

Finally, do you want your fund manager to beat the market and risk what some won’t (active management), or simply track a market at low cost (passive management)? There are good arguments for both.

How to choose the best ISA fund

Once these important factors have been considered, you then need to choose your funds. The following ideas may help.

1. Platform buy lists

Investment via a platform gives you access to a large range of funds, often at discounted prices. Platforms, such as Hargreaves Lansdown and AJ Bell, offer their top investment tips. Investors can take comfort that professional research has been done and it is simply a case of picking funds from the list. However, this is still not infallible, as recent investment scandals have proven.

2. Investment websites

The likes of Morningstar and Trustnet are incredibly useful way to understand more about how a fund invests and how it has performed. Most of these research tools allow you to filter funds based on your preferences, as well as providing metrics to help determine how risky a fund has been in the past.

3. The mainstream media

Be wary of the recommendations in the mainstream press. Journalists are not necessarily interested in your financial wellbeing and can often be motivated by circulation and website hits. For example, I do recall a conversation with a journalist that went something like this:

Journalist: Could you give us details of a fund you’d recommend for ISA investors this month?

Writer: Our firm would recommend the ABC Multi Asset fund range. The range offers five different risk profiles, exposure to a number of different asset classes and should produce predictable, albeit not sensational returns.

Journalist: That’s great, but could you sex it up a bit?

Writer: Erm, OK. I have spoken with our investment specialists, and they are currently allocating a small proportion to Robotics, Clean Energy and Rare Earth Materials. But as we said, only for a small proportion of a client’s wealth as the risks are very high.

Journalist: Perfect… “ XYZ Wealth recommend investors look to invest their ISA allowance in the ABC Robotics fund…”

4. Specialist Financial Press

The likes of Money Week and What Investment are usually full of good ideas but are often pitched to investors with a reasonable investment knowledge. For those new to investing, the number of different opinions can be overwhelming.

5. The “easy” options

If you are not an experienced investor, or don’t have the time or inclination to review your portfolio, a risk targeted multi asset fund is usually an optimum solution. You will often have a choice of different risk profiles with funds managed on a day-to-day by a team of experienced investment professionals.

Passive multi asset funds will usually be the cheapest option, but the range of returns (volatility) may be greater. Active multi asset funds will cost more but have the potential to perform better and may be less volatile.

Increasingly, we are also seeing fund managers offer investors a blend between passive and active management, which aim to capture the upside benefits of active management but keeping a lid on costs. For the novice or the time short, this may offer the best of both worlds.

Finally, you could consider taking advice from an Independent Financial Adviser or wealth manager. This will come at greater cost, but there is evidence that a good adviser will enhance your wealth by making use of your available allowances, ensuring the funds they recommend are in line with your preferences, risk profile and objectives, and crucially, ensuring you take a disciplined approach to investment.

The content contained herein is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or any other advice.

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