INVEST in an Isa now and you could now be a millionaire three years sooner than before, according to wealth manager Brewin Dolphin, thanks to the Chancellor's 'savers' budget'.
Brewin calculates that if the new £15,000 Isa allowance, available from July 1, were invested in a stocks and shares Isa every year, you could expect your fund to be worth £1,000,000 after 27 years, rather than 30 previously, assuming a 5% annual growth rate.
Tom Stevenson, investment director at Fidelity Worldwide Investment, welcomed the new limit, and the new ability to switch between cash and stocks and shares within a single Isa, but said: "We would urge savers to make the most of this flexibility and consider if their savings are working hard enough to meet their goals. Those stuck in low-paying cash Isas should consider that equities could provide much greater potential for long-term growth and income."
You can invest up to £11,520 in a stocks and shares Isa in the current tax year, which ends on April 5 - and if you don't use it you lose it, as the allowance cannot be carried over into next year. After April 5, there is a temporary allowance of £11,880, half available for a cash Isa, but from July 1 the old restrictions are scrapped and the full £15,000 allowance available in a single, mixed Nisa (new Isa).
Most investors in equity Isas are over the age of 50 - 55%, according to a recent YouGov survey. But there are signs that younger people are taking a greater interest in the stock market - 41% of Isa investors under the age of 35 have begun to invest in stocks and shares in the past three years. Graham Spooner of The Share Centre says: "Low interest rates are acting as a key driver in increasing activity from younger investors."
But before you rush headlong into a stocks and shares Isa, it's important to understand the risks. There are no guarantees, so if the market implodes, you could lose a lot of money. You can help to minimise risks by investing in a broad spread of shares in a fund run by an experienced manager. You should also think of your Isa as a long-term investment of at least five years, giving you time to ride out the ups and downs of the market.
Watch out for charges on stocks and shares Isas. Some funds levy an initial fee of up to 5%, plus an annual management charge of around 1%, which can eat into returns. If you do not need advice, you might be able to buy your funds cheaper though a discount broker or a fund supermarket.
We asked a number of experts to name funds suitable both novice and experienced investors. If you are nervous about the stock market, Mr Stevenson at Fidelity suggests M&G Optimal Income, managed by Richard Woolnough, who also runs M&G's Corporate Bond and Strategic Corporate Bond funds. Bonds are traditionally seen as safer investments than shares, as they are usually less volatile. Patrick Connolly of Chase de Vere, an independent financial adviser, puts forward Cazenove Multi Manager Diversity as an ideal choice for a cautious investor. The fund is more like a portfolio because it invests one-third in equities, one-third in cash and fixed interest and one third in alternative investments such as property. If you can stomach a bit more risk, Mark Dampier of Hargreaves Lansdown, the financial adviser, suggests Standard Life Smaller Companies. The fund has an impressive record and the manager, Harry Nimmo, has proved adept at picking winning stocks. Or there's Old Mutual UK Alpha, now run by Richard Buxton who was previously in charge of Schroder's UK Alpha Plus fund. Buxton invests mainly in FTSE 100 companies and adopts a buy and hold approach.
Mr Connolly also likes Artemis UK Special Situations, which typically invests around 50% in large UK companies and 50% in medium sized and smaller firms.
Investors who prefer to look beyond the UK might want to consider Newton Asian Income, while Newton's Global Higher Income and Emerging Income might also be worth a look, Mr Dampier suggests.
Alternatively, AXA Framlington American Growth is on Mr Connolly's list if you believe the US economy is on the road to recovery.
Graeme Mitchell, managing director of Lowland Financial, a financial adviser, takes a rather different approach. He selects a portfolio of funds for his clients, based on their attitude to risk and using research from Financial Express. The portfolio for a medium risk investor includes M&G's Corporate Bond fund and Liontrust's UK Smaller Companies.