Why you shouldn't put all your ISAs in one basket

Why you shouldn't put all your ISAs in one basket

22 March 2011 / by Rachel Mason

Limiting your exposure, building a multi-asset portfolio, not keeping all of your eggs in one basket; however you describe it, diversification is a constant theme for investors. 

And with the ISA deadline fast approaching, Fair Investment Company's associate director Oliver Roylance-Smith explains why, as with any type of investment, when it comes to ISAs, diversification is the key:

"The ideas behind diversifying investments have a long history. Fundamentally, diversification is spreading an investment across a wide range of asset classes and sectors, thereby avoiding the risk that your portfolio will be overly reliant upon the performance of one particular asset.

"The single best way to diversify your ISA investments is to spread the risk across several different asset types. The principle choice is between cash, bonds, equities and property but within each there can be further division with each class having different risk/return characteristics.

"In recent years the investment industry has developed in ways that allow investors to diversify their own investments. This could be through a single multi-asset fund, a portfolio of funds or using an investment platform or wrap provider to access a variety of investment options.

Through the Fair Investment ISA and Investment Account, investors have a choice of how to approach diversification – directly, via multi-asset funds, or by investing in a ready-made portfolio, as Oliver explains:
"Our ISA and Investment Account facilitates diversification by providing access to more than 2,800 investment choices that allow investors to select and manage their own portfolios.

"It also offers access to the Fair Investment Select 100 – a list of funds rated by independent researchers Rayner Spencer Mills, which includes funds that take an approach influenced by modern portfolio theory to invest across various assets. 

"For example, the Fidelity Multi Asset Strategic Fund is designed to perform in all market conditions with exposure to five asset classes: cash, bonds, equities, property and commodities. The make-up of the portfolio can be altered as the manager of the fund seeks to respond to global economic cycles.

Similarly the Scottish Widows Investment Partnership Multi-Manager Diversity Fund has exposure to a range of assets, through other managed funds that are carefully selected by the SWIP management team.
These funds seek to deliver a return in all market conditions by taking a relatively conservative approach. They are not immune to market shocks or falls, but can limit the potential losses if markets suffer significant shocks.

Other multi-asset options available within the Fair Investment ISA and Investment Account include the seven ready-made portfolios designed to provide exposure to different markets or assets to meet an investment objective, such as providing income or growth, or taking on different levels of risk.

"The Fair Investment ISA and Investment Account also offers access to passive funds that track sector indices or market indices, often at lower costs, such as the Legal & General Global Technology Index fund or Vanguard US Equity Index fund.

"But whether you invest directly into the stock market or via multi-asset funds or portfolios, the key is not to put all your eggs in one basket."