THE stock market has been hitting five-year highs, reaching levels last seen in early 2008 before the financial crisis, but Scots remain wary of stocks and shares Isas.

The surge came on the back of rallies around the world, led by a particularly strong performance by the Dow Jones index.

The FTSE-100 has been climbing pretty steadily since the end of last year.

However, only 16% chose to invest in a stocks and shares Isa last year, compared with 51% who put their money into a cash Isa, according to a survey by Scottish Widows.

It also found that 87% of Scots would again shun the stock market over the next 12 months.

But a stocks and shares Isa can be a sensible choice if you are saving for the long-term, usually five years or more. You can invest up to £11,520 in a tax-efficient equity Isa in the coming tax year.

Or you can put up to £11,280 in stocks and shares before April 5 if you have not yet used up the current year's allowance.

Andy Parsons, head of investment research at The Share Centre, says: "It is vital investors take advantage of their Isa allowance and protect what they can from the taxman.

"While volatile markets may have left some wary of investing, it is worth bearing in mind that over the longer term, returns from equity backed investments have consistently outperformed cash.

"For those prepared to accept a higher degree of risk, the rewards of a stocks and shares Isa are potentially more fruitful."

There are hundreds of Isa funds to choose from but many investors, particularly novice investors, prefer to stay close to home and invest their Isa allowance in a UK fund, even though the economy is struggling and the UK has recently lost its AAA credit rating.

Adrian Lowcock, senior investment manager of Hargreaves Lansdown, a financial adviser, picks JO Hambro's UK Equity Income and Axa Framlington UK Opportunities.

Tony Gammon, director at Thesis Asset Management, also recommends a fund by JO Hambro, but chooses the UK Opportunities fund. Or, if your risk threshold is higher, the Schroder UK Alpha Plus. Bestinvest prefers Fidelity's Moneybuilder Dividend or Liontrust Special Situations.

Europe and America are popular markets, but more investors are venturing into the emerging markets of Asia and Latin America. Over the past decade, Latin American funds dominate the performance charts. Invesco Perpetual Latin America is in first place, turning an investment of £1000 into £10,135 over 10 years. It is followed by Threadneedle Latin America and Scottish Widows Latin America.

Bestinvest selects First State Global Emerging Market Leaders for investors who want some exposure to emerging markets.

Japan is also staging a comeback after years in the doldrums. In February, eight of the top 10 funds invested in Japan. Hargreaves Lansdown picks the GLG Japan Core Alpha fund for investors that want a slice of the Japanese action.

A global fund is an alternative. Thesis Asset Management favours Newton Global Higher Income. Or you could choose Invesco Perpetual Global Smaller Companies fund, which is recommended by The Share Centre as suitable for investors who are looking to diversify their portfolio.

It is important to remember stocks and shares Isas are risky and returns are not guaranteed.

Graeme Mitchell, managing director of Lowland Financial, a financial adviser, says: "The recent rises in the market will encourage more people to invest in a stocks and shares Isa, when you could argue that it would have been better to take the plunge last year when share prices were lower.

"You should therefore go in with your eyes open and be prepared for a bumpy ride – and to invest for the long term. I would also suggest that people drip-feed money into the markets rather than invest a lump sum and remember to diversify their portfolio across a wide range of assets."