Where have ‘keep calm and carry on’ regular ISA savers been investing?

interactive investor looks at where regular investors have been investing and reveals the top 15 most-bought investments this tax year.

The devastating humanitarian crisis in Ukraine has the world on edge, with emotions and tensions running high in what some see as a new age of insecurity.

As well as the financial sanctions and brand boycotts against Russia, together with the soaring cost of food and energy costs, the sea of red across global markets adds to the financial dimension as pension and ISA pots feel the impact. 

It is also a reminder, this ISA season, of the uncertainty that we all live with, just two years since the coronavirus pandemic first gripped markets and a new age of age of insecurity seemed to dawn.

So, what are the keep calm and carry on regular investors doing? interactive investor looks at where regular investors have been investing. Regular investing can smooth out at least some of the stomach-churning highs and lows in the price of shares.

ii introduced free regular investing in January 2020 for funds, investment trusts and popular UK shares. This ISA season, Scottish Mortgage (LSE:SMT) investment trust is the most popular investment for regular investors, a company which has enjoyed stunning performance, helped by the tech boom, but which has taken a significant tumble over the last year.

To illustrate the advantages of regular investing, if you invested £100 a month from 5 November 2021 in Scottish Mortgage Investment Trust (the peak of the trust’s performance) until 7 March 2022, you would have £365, compared to £305.50 if you had invested the equivalent lump sum (£500) at the same peak. You’d still be significantly down, but not as much as through the lump sum investing method.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “We are living in such uncertain times, and worrying about how to approach your ISA strategy feels like a huge luxury. But in times of crisis, the ‘keep calm and carry on’ mantra has been serving investors for decades, and it’s what regular investing was designed for. Regular investing means investors buy fewer shares when prices are high, and more when prices are low, smoothing out some of those highs and lows in the price of shares, and taking some of the emotion out of investing.”

Becky O’Connor, Head of Pensions and Savings, interactive investor, says: “One of the lessons from the last two years is that second guessing markets is impossible.

“Change feels like the only constant, and insecurity is the new normal. We’ve collectively experienced global trauma after the emotional roller coaster of the past two years. Learning to separate personal responses from investment decisions is more important than ever and could help preserve your wealth as well as your broader well-being.

“That’s where regular investing comes in, and it is something our customers are increasingly recognising.”

Markets and geopolitical events combined may have even tested investment optimists this year to date: the average IA Global fund is down 10% and the investment trust equivalent is down 18% to 4 March 2022, according to FE Analytics. The S&P 500 and the FTSE All-Share indices are both down 7%, respectively, over the same period, while the FTSE 100 is down 5%.

“Of course, true optimists would remind us that over the long term markets have risen. But timing the market is nigh on impossible and no one knows when the current market downturn will bottom out. However, history has shown that time in the market can pay dividends over the long term.

Staying invested by regularly drip-feeding money into investments helps to circumvent emotionally led decisions that could harm long-term prospects and can help smooth the highs and lows of investing.

Scottish Mortgage is the most-bought investment through interactive investor’s free regularly investing service among ISA accountholders this tax year (to 4 March 2022), followed by Fundsmith EquityandVanguard LifeStrategy 80% Equity, Baillie Gifford Positive Change and Vanguard LifeStrategy 60% Equity completes the top five.

Most-bought investments through interactive investor’s free regularly investing service among ISA accountholders this tax year

Keeping cash for emergencies

Myron Jobson, Senior Personal Finance Analyst, interactive investor, adds: “The peace of mind aspect of keeping emergency cash savings shouldn’t be overlooked. In truth, everyone should have a pot of easily accessible cash for life’s little emergencies, and those who are nervous about investing or simply don’t need to take risks to achieve their financial goals might want to hold more. Three months’ salary used to be a good rule of thumb, but six months may be even more reassuring for those who can manage it.

“However, having far too much cash in savings can be a drag on wealth creation over the long term. The problem is it is difficult to know how to invest amid story markets. Some people wait for a better time to invest, but it is impossible to know for certain when that time might be and there is a good chance that you would be unaware when that time comes.

“Investing should be about achieving returns that outstrip cash over the long term without taking on excessive amounts of risk. A good approach is to drip-feed your cash into your investments regularly – every month typically – rather than investing it all at once. This helps to reduce the risk of the market, and smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low.

“Our ISA customers who invest regularly have favoured global strategies from some of Britain’s best-loved and most widely held funds and investment trusts, offering diversification amid market uncertainty stoked by a number of factors from Covid through to rising inflation. Some of the investment trusts in the top 15 have survived countless global crises, from world wars and the Great Depression, through to the financial crisis, and it is also great to see some newer names making the grade too, including Baillie Gifford Positive Change.”

“Whatever your approach, a well-diversified investment portfolio helps to cushion the occasional shocks that come with investing in a single asset class or region.”