This year’s ISA season may see a sharp fall in transactions compared to 2019 because of worries about coronavirus, though the market plunges that have put off many savers equally attracting those looking for bargain investment opportunities.
Current indications are transactions are down about 10-20% on this time last year, says Darius McDermott, managing director of Chelsea Financial Services.
“Clearly this ISA season has been interrupted, both from a personal movement and stock market point of view,” he said, with a fall in transactions is to be expected given the market volatility and dramatic financial headlines every day.
This is bad news for equity fund managers, with UK fund redmeptions of £2.3bn in the first two weeks of March and rising to £4.4bn of outflows after three, as fears of a global recession mounted, according to figures from Calastone.
But things may not quite be so clear, with some of the large investment platforms still reporting plenty of activity — although the exact industry-wide figures are not published yet.
Many savers will also leave their ISA to the very last minute, with the investment deadline of 5 April last year seeing investment platform giant Hargreaves Landsown PLC (LON:HL.) take contributions to its ISAs every 8 seconds between 11pm and midnight.
Despite the stock market tumbles and the UK-wide coronavirus lockown, the investment platform of AJ Bell PLC (LON:AJB) has seen “a lot of activity”, according to a spokesman for FTSE 250-listed group, with website and mobile app log-ins and trading volumes “very high”.
The number of trades on the AJ Bell platform in the past week was split roughly 62-38% between buys and sells, while the value split was 43-57% in favour of sells.
“That suggests that investors are moving to diversify their portfolios, ie they are selling larger holdings and then purchasing a larger number of smaller positions,” says the spokesman.
A Hargreaves spokeswoman said the ISA season “has been very positive” with “significant increases in client engagement” and elevated dealing volumes, though this does not necessarily translate to increases in ISA purchases.
“This highlights investors’ appetite for risk and showcases the opportunistic time within markets,” Healey says.
Cautious investors, says McDermott, have been moving into cash “more so than we would usually see”, but he believes this is not a permanent measure given that cash ISA rates are very low but is rather a way for savers to ensure the ISA allowance is not lost this year before switching into investments at a later date.
“What we have seen, among our more experienced clients, is that they have been taking advantage of weakness in markets to top up and buy more,” he added.
With the FTSE 100 and 250 indices down more than 25% and 33% respectively, while the main Wall Street equity benchmarks have fallen 15-20%, many investors are looking for bargains.
“While stock markets may fall further still, over the long-term this could prove to be a good point at which to have been brave and invested,” says McDermott.
Investors have been viewing lower prices as an excellent opportunity to buy equities at better prices, says the Hargreaves spokeswoman.
“We’ve also seen plenty of activity of people rebalancing their portfolios. The current market has reminded people of the enormous benefits of having a diverse portfolio, so many people are taking the opportunity to ensure the balance of equities, bonds and other assets meets their needs.”
For investors who feel uncomfortable on deciding where to invest, whether that be down to a lack of time or knowledge, Healey suggests doing some research into investment funds and trust.
“They provide a collective way of investing which can reduce the cost and stress of having to select investments, instead leaving this to an investment professional," Healey says.
“It’s important for investors to remember that markets do have the potential to head lower so they need to take this risk into account before making any decisions. Nevertheless, from a longer-term view there is a lot of potential to be had.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, offers “three golden rules” to help all investors stay on track even when the investment world is highly turbulent: “make sure you have a diverse portfolio; stick with it for the long term; and use your tax breaks - so that when we get an upturn, you’re in the best possible position to take advantage”.
She says people shouldn't put themselves under pressure to make any decisions they're not ready for.
“If you’re planning to invest, you’re not always in the right frame of mind pick shares or funds at the last minute. The good news is that you don’t have to. Before the deadline expires, you can put money into a stocks and shares ISA or SIPP as cash, and move into your chosen investments when you’re ready.”