ISA time is here again. It’s time to think about our ISA allowance for 2021/22 and talk about how I am going to maximise my tax free savings allowance for this next tax year.
This year’s tax free allowance is once again £20,000 (and £9000 if you are investing in a Junior ISA)
This means you can invest up to £20,000 in a special account and not have to pay any tax on interest or dividends and any capital gains are free from taxation also. Over the years this can really make a difference to your wealth building.
I have been a fan of Trading 212 since I started using the platform back in February of 2020, and while all my ISA investing has been with Vanguard up until this point, I am making the leap to Trading 212 for this next financial year.
Why Trading 212?
Very quickly the reasons I like Trading 212 are as follows:
- Low fees – the only fees payable are for forex fees of 0.15% per transaction. It used to be totally free but still the lowest in the business.
- Partial shares – unlike Vanguard, you don’t have to buy a full share. For example, you don’t have to spend $3000+ for a share of Amazon, but rather can buy £100 worth of a company or an ETF. This makes investing accessible to everyone.
- There are lots more ETFS and shares available on Trading 212 compared to Vanguard and I have my eye on some of those.
- Pies (more on that later)
I would love to max out my ISA allowance of £20,000 this year, although at this point, it seems unlikely. I have a long term goal of having £100,000 invested as I look to increase my net worth by £400,000 at which point, I can down tools and move to the beach!
Time and consistency with investing will help me achieve that goal so Trading 212’s facilities of pies alongside their auto-invest tool gives us everything we need to invest regularly into solid stocks and shares that will hopefully yield strong results as time goes by.
Trading 212 have a description of how pies work on their website here but let me give you a quick run down.
Pies are collections of stocks, shares and ETF’s you want to invest in with different stocks and shares represented by slices of that pie.
Each slice can make up a different allocation of that pie. So for example if you wanted to invest £100 into Apple, Google, and Facebook then you could allocate perhaps £40 to Google, £30 to Apple and £30 to Facebook.
Now you have this pie, you can choose to invest automatically or manually.
I’m interested in investing automatically, however I am having trouble getting payments to behave with open banking so in the meantime, I’m rolling with manual. Anyway, it’s fun to invest manually and actually get the satisfaction of moving that money!
If I have £500 to invest I can set up the scenario where my £500 will be allocated to this pie and my £500 will be split between the slices as I have requested… that is a 40/30/30 percentage split.
This makes it very easy to invest without having to work out how much money to allocate to your slices each time.
Further, since Trading 212 allows fractional shares, every penny will be allocated and you won’t end up with any cash not being allocated and utilised because you don’t have enough for a full share.
To my mind, this is about as good as it gets.
Further, when setting up your pie you can place a target amount you want to hit. Based on the past performance of the assets you have chosen for your pie, Trading 212 will offer some kind of projection as to whether or not you will hit your goals in a given time frame while investing a particular amount:
So above, paying £400/month over 8 years at an estimated 10.13% yield will mean this particular goal will not be met.
Of course you can adjust your investments as time goes by to try to hit those goals and it’s also really important to remember that this is just a rough projection. Actual performance will depend on so many factors so don’t take these too seriously!
If you are anything like me, you will have a rough idea of what you want to invest and at the end of the month, anything extra will be thrown in on top of your regular investment.
I’m looking forward to trying out this pie feature.
I have even shared my initial pie that copies my Vanguard ISA – you can check it out here: