A Stocks and Shares ISA is well-suited a long-term investment timeframe. Hopefully, over years and decades to come, my tax-free ISA will grow in value. That could come in part from me adding more funds to it.
But I think it is also possible to try and increase the value of my ISA even without adding a penny in new funds.
Here are three moves I could make.
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.
1. Don’t withdraw a penny
Shares inside an ISA may sometimes pay out dividends. These can be withdrawn from the ISA wrapper.
It makes sense to me why people do this. Maybe they have an unexpected bill to pay or would like some passive income streams.
But by leaving those dividends inside my ISA, I would have more to invest even without putting in new cash myself.
2. Sell very overvalued shares
As an investor, I think it is important to have a sense of what we think any share we own is worth. Different people’s opinions may and do vary, that is why we have a stock market. But without having an idea as to what we think a share is worth, it is impossible to judge whether it seems undervalued or overvalued.
Sometimes, shares I own may look overvalued. Occasionally, they come to look very overvalued. In such a situation, by selling those shares I can turn them into cash and use it to buy other shares I find much more attractively valued.
In a bubble, overvalued shares can become even more overvalued. By selling, I miss out on some potential gains. But I think it is more prudent to cash in when I think a share is very overvalued, rather than risk waiting and finding a sudden crash brings the valuation back down to earth.
3. Consider selling the weakest share
As a prudent investor, naturally I keep my Stocks and Shares ISA diversified. At any one time, I will feel better about some of the shares I own than others. Sometimes as investors we become emotionally attached to our investments.
Rationally though, it makes sense from time to time to review ISA holdings, identify the worst share at that moment and then decide whether it is worth keeping, or just selling even at a loss.
For example, I am still clinging on to shares in boohoo (LSE: BOO). I still like the company’s range of brands, large customer base and formerly proven business model.
But the boohoo share price has been in freefall. It is down 14% this year and a massive 88% over the past five years. Even a recent spurt in the price is down not to business performance but talk of a potential break-up.
Why have I not sold? I have been judging that boohoo’s problems are fixable and its commercial approach can deliver again in the future as it has in the past. But the business trend has been alarming – revenues fell 17% last year — and the shares have fallen a long, long way in recent years.
Things sometimes get better in the stock market for a struggling company, but they often get worse. I’m looking to sell my boohoo shares if there is not clear evidence of an improving business this year.
