It is less than a month until the New Year. As an investor though, that means I still have around four months before my current ISA allowance expires. At that point, I will get another year’s allowance (unless the government monkeys about further, as it did with the proposed British ISA).
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
With lots of potential to invest my ISA in 2025 and beyond, here are three mistakes I will be seeking to avoid.
Mistake 1: ignoring seemingly small costs
What is the difference between 1% and 1.5%? At face value, it may seem like there is little to chose. But an ISA is a long-term investment vehicle – and over the long term, seemingly small differences can add up.
For example, imagine £20k gets chipped away by 1% a year. After 20 years, it will be £16,358.
What if it gets chipped away by 1.5% each year for the same period? I will end up with £14,783. That strikes me as a big difference.
Before even considering how to invest my ISA then, I look at what options may be suitable for me and what charges each will impose.
There are lots of choices available so I want to make the choice that best suits my own financial circumstances and objectives.
Mistake 2: going ‘all in’ on one big idea
Still, even if the charges are higher, maybe I could still make bucketloads of cash if I choose the right shares?
Yes, I could. Putting a £20k ISA into Nvidia stock five years ago, for example, would mean I was now sitting on shares worth over half a million pounds (£547,000, in fact).
But such runaway successes are the exception not the rule – and even the best company can run into unforeseen difficulties.
So wise investors always spread their ISA over a range of shares.
Mistake 3: failing to spot a potential value trap
Another mistake is buying a share with an unusually high dividend yield, only to see it cut.
For example, Diversified Energy Company (LSE: DEC) and its 7% yield may look appealing. A few months ago though, that yield was actually quite a bit higher.
The company that specialises in buying up old gas wells has slashed its dividend. Not only that, the share price has tumbled 48% in five years.
That does not surprise me. High-yield shares that cut their dividend often see a share price fall as a result.
Diversified has some things going for it. It owns tens of thousands of wells. Thanks to its secondhand purchasing habits, it does not need to spend on exploration like many oil and gas majors do.
But it has borrowed heavily as it has grown, while facing risks from the cleanup costs of old wells to volatile energy prices.
I do not own this share partly because I fear such risks mean even the current dividend, though smaller than it was formerly, could be cut again.
If I had bought Diversified for my ISA before its dividend cut, I may now think I had fallen into a classic trap. That is one mistake I am always keen to avoid!
The post 3 ISA mistakes to avoid in 2025! appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
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See the full investment case
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
