Swap your safe pot for something a bit racier

Moving investments out of cash and into something riskier may not be at the forefront of investors’ minds in the current economic climate. But under new rules introduced this month, it is now possible to transfer existing cash Isas into stocks and shares Isas.

Most in the industry say the government should have made it possible to switch from stocks and shares Isas into cash as well. However, figures show that cash is already more popular than stocks and shares with Isa investors, and tends to lead to a greater tax loss for the Treasury – meaning that it is in the government’s interest that there are more stocks and shares Isas. The official government line is that savers should be encouraged to diversify their assets and benefit from the potentially greater long-term investment returns that equities can offer.

So why move a cash Isa into a stocks and shares Isa? There are a number of reasons, experts say. Some investors could find their risk profile has changed and they are now willing to experiment with equities. Others may have built up cash in an emergency fund for a specific reason that no longer applies. Or investors who took fright at market conditions last year and opted for a cash Isa might now want to reconsider.

Of course, financial advisers warn that switching out of cash is not for everyone, with some even saying the new rules could result in the next misselling scandal as people are advised to switch their investments purely to give a commission to the adviser.

But Tom Ryan, director at Barclays Stockbrokers, says all investors should be reconsidering their Isa portfolios in light of the new rules. He warns: “To have all your investments in cash is quite a risky strategy and, in the long term, equities outperform cash.”

A growing number of people say now is a good time to get into equities, particularly if you’re willing to invest for the longer term.

Ryan says: “The market is incredibly cheap right now – it’s a very good time for the medium to long-term investor to get into the market.”

For those who do decide to switch, a low-risk fund may be less of a leap than going into, say, emerging markets. Fixed-income funds such as the M&G High Interest fund, currently one of the most popular at Barclays Stockbrokers, or structured products that offer capital protection could be a good option.

Peter Hicks, executive director, UK retail, at Fidelity says: “If you’re going from something risk-free into something that carries risk, the key thing is diversification. You shouldn’t go into something that’s purely shares.”

One such fund could be Fidelity’s recently launched Multi-Asset Strategic Fund, he says, which was designed for the cautious investor. It is currently underweight in equities and property and overweight in bonds and cash, but always has some equity exposure.

Pak Chan, head of investments marketing at Abbey, says some customers have already used the option of switching their cash Isa into a stocks and shares Isa, with about half choosing one of its two capital-guaranteed products and the others going into Abbey’s equity managed fund range.

“I think this is because, over time, people’s personal wealth has grown – they are more confident investors and their attitude to risk has changed,” he says.

Another option is to move cash into a stocks and shares Isa but hold it in cash until an investment opportunity presents itself. This can be quicker than transferring from a cash Isa to a stocks and shares Isa, which can take up to 30 days between different providers. But there are a number of drawbacks to this option. The interest on cash in a stocks and shares Isa is taxed at 20 per cent unlike in a cash Isa, which is seen as a disincentive for holding the cash too long and circumventing the Isa rules. The Treasury also says that cash can only be held temporarily in a stocks and shares Isa, though it has not clarified how long this is.