“Consider that in the last bear market the FTSE fell 59 per cent from a peak of 6,597 in July 1999 only to rise from 3,490 in January to a peak of 6,730 in October 2007,” he says. “This is an increase of 92 per cent in four years and average of 23 per cent per annum. If you consider investing in an ISA, these returns can be made tax free.”

Of course, no-one has a crystal ball that can tell them when markets have actually reached a bottom, sadly. But that said, research by LV= reveals that a third of Brits expect to look back on this period as having been a good time to have invested in equities. Despite this, only 3 per cent of adults admit to having definite plans to invest in the stockmarket and only a further one in 10 people are considering the option.

Robin Willison, financial advice director at LV=, says: “Given the volatility in global markets, investors could be forgiven for not having the courage of their convictions. However, we want to remind investors who have not used this year’s ISA allowance that they will lose it forever if they don’t invest before the deadline.

“Investing in the stockmarket is a decision for the long-term, and canny investors can shape their portfolio to match the level of risk they are prepared to take with their money.”

Keep on top of your investments

LV=’s research also found that 60 per cent of investors admitted that they had no plans to review their investment portfolios despite the recent stockmarket falls and the looming ISA deadline.

Malcolm Cuthbert, chairman of Killik Chartered Financial Planners, says now is exactly the time when these portfolio checks should be carried out.
He says: “It is important to kick the tyres and review your investments held within your ISAs every year. You need to check past performance, the fees being charged and that the asset allocation continues to meet your needs.”

Several brokers, such as Chelsea Financial Services and Killik, offer portfolio review services.

Cuthbert says that given the falls in value of many investments, investors should also be considering whether it is the perfect time to bring direct equity or fund holdings within a self-select ISA.

“While many people are holding shares that have lost a significant amount of value, it can make sense to put these into an ISA to shelter any future recovery in their value from tax,” he adds.

“We can safely say that every single investor is likely to be better off by putting their non-pension assets in an ISA than they would if they used any other tax wrapper,” Kennedy says. “It would seem almost indefensible not to consider moving assets from an existing wrapper into an ISA.”

Unless of course there are exit penalties, which could reduce the advantages.

Pension saving and ISAs

Saving in a pension is widely considered to be the most tax-efficient form of saving of them all, as the government matches savers’ contributions with tax relief at their nominal rate of income tax. This is even more attractive if your employer pays in a decent contribution.

However, all too many of us have saved too little for our retirement. All is not necessarily lost, however, as Cuthbert says that using your ISAs can ‘turbo-boost’ your pension fund.

He explains that if you are over 50, or over 55 from October 2010, and a higher rate taxpayer with an under-funded pension, you should really consider transferring your ISAs into a Self Invested Personal Pension (SIPP) in order to give your pension fund a 114 per cent boost without any investment risk.

“Here’s how it works: A 50 year individual puts £8,000 into his pension. He receives £2,000 tax relief immediately and can claim back £2,000 through his tax return, so a £6,000 net investment results in £10,000 in his pension,” he says.

“If the individual then takes benefits from their pension they could take 25 per cent of the £10,000 or £2,500 in cash. This means that the net cost to them is £3,500 for £7,500 in their pension. While it is not permitted to recycle the tax-free lump sum back into a SIPP, it is possible to recycle the income drawdown. Alternatively, the 25 per cent tax-free lump sum and higher rate tax relief can be put into an ISA.”

He adds that it is worth remembering that while income from an ISA is tax-free, that is not the case with pensions. For the savvy investor, the ideal situation is to receive higher rate relief on the way into the pension and then become a basic rate tax payer when you need to take an income from the pension.

It is complicated but you cannot argue with the results. Hmmm, and we were saying ISAs are simple…