MAKE A SMARTER ISA DECISION. - Fidelity · An ISA (Individual Savings Account) is one of the most eﬀective ways to put money aside for the long term and our guide aims to answer

MAKE A SMARTERISA DECISION.

LET’S TALK HOW.

2 Fidelity ISA Guide

In this guide we will explain what an ISA is,how investments differ (particularly whenlooking at various asset types from cashthrough to equities) and explain how fundswork. It also introduces our guidanceservice and explains how this could helpyou make your investment decisions.

Please note that Fidelity Personal Investingdoes not give investment advice. If you areunsure about the suitability of an investment,you should speak to an authorised financialadviser. The value of investments and anyincome from them can fall as well as rise,so you may not get back what you invest.

Contents

Why do I need an ISA? 3

Asset classes – managing risk 6

Funds explained 8

How to choose funds for your ISA 10

When should I start? 11

Helping you make your investment decisions 12

Thank you for requesting this Fidelity ISA guide. An ISA (IndividualSavings Account) is one of the most effective ways to put moneyaside for the long term and our guide aims to answer some of themost popular questions about this tax-efficient investment option.

Fidelity ISA Guide 3

Why doI needan ISA?

What is an ISA?

You may have heard people say that theyneed “to get an ISA”, but the ISA is notactually an investment in itself. Instead, anISA is simply an account that protects yourinvestment returns from tax. Some peopleinvest in order to grow their savings, someto generate an income – an ISA can makea big difference either way.

Under current tax rules, you do not have topay income tax or capital gains tax (CGT)on the returns from any investments in yourISA. The value of tax savings and eligibilityto invest in an ISA will depend on personalcircumstances. All tax rules may change.

Whatever your financial goals are, an ISA could be a great wayto help you achieve them as it offers a compelling combination ofeasy access and long-term tax advantages. An ISA can even bea good way to support your retirement savings, as it doesn’t lockyour money away as pensions do.


Are the tax advantages really worth it?

Only you can answer this question and itdepends on your personal circumstances.However, we believe that, for many people,an ISA is one of the most generous handoutsthey will receive from the Chancellor.

Over the years, an ISA could save you asignificant amount that you would otherwisehave had to pay in the form of capital gainstax or income tax. In an era where the upwardpressure on tax seems to be relentless, thisis doubly important. Every time taxes rise,the ISA tax break gets even more valuable.

Just to give you an idea of how high taxeshave become, consider this. In 2016 the firstday of the calendar year that employeesworked for themselves rather than HMRC was3rd June. This is known as Tax FreedomDay*. It’s calculated by measuring taxes,including stealth taxes, and NationalInsurance contributions as a percentage ofthe UK’s net national income – this came to42.3%, or 154 days.*Source: Adam Smith Institute June 2016.

03 June

Tax FreedomDay


Can I invest for my children in an ISA?

You have complete freedom in how you usethe money you invest in an ISA, so you couldeasily put the savings aside to give to yourchildren at a later date. That said, a JuniorISA may be a better option. These offer allthe tax benefits of an adult ISA and theyhave a yearly allowance that doesn’t affectyour own ISA allowance. Please visitfidelity.co.uk/jisa to find out more.

Please note that in a Junior ISA the investmentis locked away until the child is 18 years old.In addition, any contribution to a Junior ISA isa gift to the child and it cannot be returnedto the contributor at a later date if they changetheir mind.

How much can I save?

There is a limit on the amount you can saveinto your ISA each year. For the 2016/17 taxyear, the maximum is £15,240 (this will increaseto £20,000 in the 2017/18 tax year). You canhold your money in investments or cash, inany combination as long as you stay withinthe annual allowance.

Please note that any allowance you don’tuse in one tax year can’t be carried over tothe next, so there’s a genuine incentive totake advantage of your ISA opportunitywhenever possible.

The annual allowance is per person so acouple can save a total of £30,480 taxefficiently which could make a significantdifference to investment returns over the years.

Any questions?Phone our UK-basedcall centre on0800 41 41 61


Asset classes –managing risk


Types of assetThere are five main asset classes and each carries adifferent level of risk.

Less risk More risk

3 4 521

COMMODITIES

Physical assetssuch as metalsand oil. Direct

investing isdifficult (apartfrom gold) but

you caninvest indirectly

through afund. Considered

lower riskthan shares.

PROPERTY

Residential orcommercial

buildings. Therental income

and potential risein value meansproperty often

outperforms cash,but it can be hard

to sell.

STOCKS ANDSHARES

A stake in acompany. Higherrisk than otherasset classes.

Values fluctuate,but historicallyhave tended toperform better

than other assetclasses over the

long term.

BONDS

A loan to thegovernment

or a company.Normally pays aregular incomeuntil it matures.Can fluctuate invalue, but usuallyconsidered lowerrisk than shares.

CASH

Cash held in anISA, deposits in abank or buildingsociety savingsaccount. Easy toaccess and lowrisk, but its valuecan be eroded

by inflation.

Balancing your portfolio – An important part of managing risk in your portfolio isspreading your money across several different asset classes as they may not all dowell at the same time. It’s a good idea to review your portfolio periodically to makesure that it reflects your attitude to risk and is on track to meet your investmentgoals, adjusting your asset mix if necessary.

Your goals, your wealth and your experience as an investor are alllikely to affect the amount of risk you’re comfortable with – investmentsshouldn’t give you sleepless nights.


ExpertmanagementThe fund managerdecides on the strategyand uses their judgementand experience to decidewhere to invest and whento buy or sell differentassets, according to theaims of the fund. Theyare supported by a teamof analysts who researchcompanies, markets andsectors.

Lower costinvestingCreating a well-diversifiedportfolio from individualstocks and shares canrequire a considerableamount of cash. Byinvesting in a fund youmay benefit from instantdiversification and assetallocation for a muchsmaller financial stake.

PooledpowerYour fund manager maybe able to put yourmoney into investmentsthat you wouldn’t beable to access as anindependent investor.What’s more, becauseof the amount of moneyinvested, you’ll alsoenjoy the buying powerof a larger investor.

EasydiversificationFunds are a simpleway to diversify. Witha fund, your moneycan be invested indifferent asset classes,companies, sectorsand geographicregions. Having thisbroad mix of assetshelps to spread yourinvestment risk.

Investing in the markets by yourself takes a great dealof time and research. But when you invest in funds,you can leave the hard work to the experts.

How funds work

Your money is pooled with that of other investors and is invested on your behalf acrossdifferent asset classes, generally equities and bonds. Some funds include other investments,for example property or commodities. Funds offer a number of benefits not readilyavailable if you build your own portfolio of individual assets:

Fundsexplained


Active vs passive fund managementThere are two main strategies used to manage funds: active and passive.

Active funds are run by managers whoinvest your money tactically with the aim ofoutperforming the market.

These funds offer the potential for higherreturns than the market, or markets, that thefunds’ assets are invested in. Activemanagement can potentially be useful inmore specialised areas, where expertknowledge and field investigation couldhelp to seek out value.

Passive funds, on the other hand,simply track the performance of a stockmarket index.

Since they don’t use a team to select theunderlying investments, passive funds tendto have lower charges.

Is there any way to reduce portfoliovolatility in the long term?

Investing in shares through an activelymanaged fund could help reduce thevolatility of a stock-market investment. This isbecause you will be holding a selection ofshares chosen by an expert fund manager,who will be aiming to outperform the market’sreturn over the long term.

You can potentially reduce volatilityeven further by increasing the level of‘diversification’ in your portfolio. This meansholding a mix of funds that invest in differenttypes of assets, sectors or geographicalregions, so you have access to a widerrange of opportunities.

Is there any way to reduce portfoliovolatility when I invest?

A good way to reduce volatility is to investsmaller amounts through a regular savingsplan with Fidelity. Some months, share priceswill be lower and you’ll buy more shares.Others, they will be higher and so yourinvestments are rising in value.

There is another way to reduce volatility thatalso allows you to take full advantage of yourISA allowance. By ‘phasing’ your investmentyour total investment is collected up-frontand broken into six equal parts, which arethen invested monthly into your chosen funds.However, the whole investment countstowards the tax year when you made yourinitial investment. If you change your mindabout phasing at any point, you can alsochoose to invest the remaining sum sittingas cash straight away.


First, you may want to ask yourself…

1 Income or growth? What are you investingfor? Is it the deposit for your first home, ora better retirement lifestyle? Whatever it is,decide whether you’re looking for aregular income or long-term growth.

2 What’s my time horizon? This can helpyou pinpoint how much risk you’re happyto take. As a general rule, the longer yourtime frame, the more risk you can affordbecause your investments have more timeto recover.

3 How do I want to invest? Lump sumor regular contributions? Either way (orboth, if you prefer) is possible, providedyou don’t exceed the annual allowance.

4 One fund or several? Some new investorsfeel most comfortable with just one fund.Otherwise, a portfolio of funds can providea mix of investment management styles,as well as of assets and geographies.

With hundreds of funds on offer, the choice can be daunting.To help make it easier, we’ve pulled out a few simplesuggestions to get you started. After that, our guidanceservice can help you build your ISA portfolio.

How tochoosefunds foryour ISA


If you’re wondering when to start investing, we’d suggest youshould consider beginningas soonaspossible. There are twogood reasons for this answer – the nature of ISA allowancesand the power of compounding.

What’s so special aboutISA allowances?

An ISA allowance lasts for just one tax year.If you don’t use it all by 5 April, you can’tcarry the remainder into the next tax year.This means that if you wait to invest, youcould miss out on valuable tax savings.Over the course of a long-term investment,we believe the tax protection offered by anISA could add up to a significant amountthat would otherwise have been paid tothe taxman.

Why does compounding matter?

Waiting to invest also means you could missout on the effects of compounding, whichcan make a significant difference to thevalue of your investments over the years. Tounderstand its power, imagine a fund thatgrows by an average of 5% a year aftercharges. If you invest £10,000 and hold it forten years, your investment would rise invalue by £6,288 (to £16,288).

However, putting aside £10,000 for 30 yearswould mean your investment rises by£33,219 (to £43,219).

That’s over five times more growth, eventhough the same amount of money is onlyinvested for three times the number ofyears.

This example shows the effect ofcompounding and is for illustrative purposesonly. Neither the growth rate nor the cashvalue are guaranteed. All investment fundswill have charges and these will alsoreduce the rate of return. Stock marketinvestments can go down in value as wellas up and a return of 5% a year aftercharges each year may not be achieved. Infact, some years may produce a negativereturn on your investment – and it is possibleto get back less than you invest.

WhenshouldI start?


We know it can be difficult to choose funds to hold in your ISA.If deciding to invest with us through our Stocks & Shares ISA,we offer lots of information and guidance to help you makeyour decisions.

Our guidance service includes a range of tools and services that can helppeople with all levels of knowledge to start investing. The following pagesfeature our PathFinder tool, our Select 50 and the online tools to supportyour own fund research on our fund supermarket.

We’ve made choosing funds as easy as we can, but it’s important tounderstand that this is not financial advice or a recommendation. You arein full control of picking your funds and managing your account in the future.If you need more help, please speak to an authorised financial adviser.

Helping youmake yourinvestmentdecisions


PathFinder

An easier way to start an ISA

Our PathFinder tool provides you with a ready-made,single investment that holds a range of Multi AssetFunds chosen by the Fidelity Multi Asset team.

This specialist group of experienced analysts and fund managersis dedicated to developing investments designed to meet a widerange of investor needs. They have been managing our ready-made portfolios for over 20 years. PathFinder is designed forpeople who are looking for an easy and quick way to start investing.All you have to do is pick the investment approach you want tofollow. We do everything else for you.

Visitfidelity.co.uk/pathfinderto startyour ISA

14 Fidelity ISA Guide14

Capital growth

There are five levels of risk available, which are based on the mixesof assets held in the funds. If you want a lower-risk way to invest, youcan choose a defensive option that has a greater allocation ofbonds and cash. At the other end of the scale, you can opt for amore growth orientated fund – some of which can be fully investedin global equities or funds with a higher level of risk.

There are three types of Multi Asset Funds that are based ondifferent investment approaches:

• Fidelity Multi Asset Allocator Funds keep their costs lowby investing in funds that simply track the performance ofdifferent assets.

• Fidelity Multi Asset Funds invest mainly in Fidelity’s own fundrange. This gives you the potential for additional returns by usingour own fund manager’s stock picking abilities with the aim tooutperform the market, but is higher risk.

• Fidelity Multi Asset Open Funds use our team of experts to seekout talented fund managers from around the world, includingFidelity’s. This gives you the potential for additional returns fromthe diversity of approaches and stock picking skills.

Income generating

If you are interested in our income options we’ll show you threeMulti Asset Income Funds to consider. They contain a range of assetclasses which aim to deliver a yield for investors and movebetween different income generating asset classes as the marketchanges. You can choose to withdraw any income or have itautomatically reinvested.

15Fidelity ISA Guide

Visitfidelity.co.uk/pathfinderto startyour ISA


Your instant investment portfolio

Once you’ve made your decisions, we will sort out everything foryou. You’ll be investing in a single fund that invests in a range offunds chosen by our experts to suit your chosen level of risk.

Our team of experts will use their research and expertise to make the most ofopportunities in all economic conditions, as well as managing the day-to-daydecisions needed for an effective investment strategy.

Please note that the PathFinder tool is not a recommendation or advice inrespect of a particular investment. If you need additional help, please speak toan authorised financial adviser. You should regularly reassess the suitability ofyour investments to ensure they also continue to meet your attitude to risk andinvestment goals.

Visitfidelity.co.uk/pathfinderto get started


Select 50Funds ideas direct from Fidelity’s experts

If you want to build your own ISA portfolio, but you’dlike a bit of help along the way with some funds toconsider, try the Select 50.

It contains around 50 funds from the market that we believe standout from their peers. They are chosen by the Fidelity Multi Assetteam, who apply the same criteria to Fidelity funds and those fromother companies, so you can be sure you are receiving abalanced and impartial selection.

How we choose the funds

Select 50 does not simply highlight the best-performing funds in asector on a particular basis or time period. We choose fundsbased on our selection team’s research and in-depth knowledgeof the managers’ processes and investment philosophiescombined with mathematical techniques to analyse each fundmanager’s past performance and their portfolio. All the funds weselect are expected to generate consistent outperformance overthe long term, with an appropriate level of risk.

The full list is reviewed regularly. If the team finds an outstandingnew idea or identify an issue with one of the existing funds, theywill make changes. Please see fidelity.co.uk/select for the mostrecent funds.

Introducing the experts

Our Multi Asset range and the Select 50 are managed by thesame team of specialists – Fidelity Multi Asset. They are a globalteam of investment professionals (located in London, Paris, HongKong and Tokyo) who manage over £44 billion*. This gives themon-the-ground access to markets and fund managers acrossthe world.

As a result, they have a great deal of experience in identifying thebest fund managers – from within Fidelity and from otherinvestment management companies all over the globe. They arealso experts in asset allocation, so they are able to design mixesof asset classes that they believe offer the right combinations ofrisk to deliver the right levels of return for our customers’ needs.

*Source: Fidelity Multi Asset as at 31 December 2016.



Using the Select 50

The Select 50 is divided into eight easy-to-understandcategories covering the world’s stock markets, bondsand alternative investment options.

For most investors, the first decision will be to decide whichcategories you want to invest in. If you are starting from scratch,you may want to combine multiple categories to create a portfoliothat meets your needs.

Whatever approach you choose, please make sure you understandyour chosen funds before you invest, including the risks they take.While the Select 50 represents funds that our experts particularlyrate, we are not recommending that these funds are right for you.Additionally, you may own a fund that is not listed on the Select 50and we are not recommending that you sell it. You must ensure thatany fund you choose to invest in is suitable for your own personalcircumstances.

Visitfidelity.co.uk/selectto start your ISA


Looking ahead

Whichever option you choose, please remember to reviewyour investments regularly. The easiest way to do this isthrough our online Account Management service, which givesyou the latest performance information for all yourinvestments at any time of the day or night. To get started,just go to fidelity.co.uk/accountmanagement.

It’s also important to keep in mind that many people findtheir attitude to risk changes over the years, which may meanchanging your investments. Although we are here to help youmake your own investment decisions, you are in charge ofmanaging your ISA, so you will have to make any necessarychanges to your chosen funds.

FundSupermarket All the tools you’ll need to research our full range

If you like doing your own investment research, you can exploreour full fund range using our online tools. In minutes you’ll beable to turn over investment funds from more than 100 of theUK’s leading fund managers, into your own personal short list.

All you have to do is choose the search terms you areinterested in. You can then research the funds in more detailusing the factsheets that are available on our website.

Whatever approach you choose, please make sure youunderstand your chosen funds listed before you invest, includingthe risks they take. You must ensure that any fund you chooseto invest in is suitable for your own personal circumstances.

Please remember, the value of investments can go down aswell as up, so you may not get back the amount you invest.

Before you invest, please ensure you have read Doing Business with Fidelity and the KeyInvestor Information Document (KIID) or Fund Specific Information Document (FSI), relevantto your chosen fund(s). These documents give you all the information you need to knowabout Fidelity, including details of the objective, investment policy, risks, charges and pastperformance associated with the fund(s). Instructions on how to access these documentscan be found at fidelity.co.uk/importantinformation. If you do not have a computer oraccess to the internet please call Fidelity on 0800 41 41 61 to request a printed copy of thedocuments. The Full Prospectus is also available on request from Fidelity.

Visitfidelity.co.uk/fundsupermarket

Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority.Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

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Start yourISA today

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MAKE A SMARTER ISA DECISION. - Fidelity · An ISA (Individual Savings Account) is one of the most eﬀective ways to put money aside for the long term and our guide aims to answer