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Five ISA tips from Fidelity as tax year draws to a close

As the end of the tax year draws nearer, Fidelity is warning savers to avoid mistakes that could damage their portfolios.

Investment director Tom Stevenson shares five of the most common mistakes he has witnessed and advises consumers on how to avoid them.

The first is leaving savings in cash. “UK interest rates are at historical lows, and those saving in cash are likely to make real-terms losses on their money, due to the impact of inflation,” he explains.

The second is investing everything in one fund. “Putting all of your eggs into one investment basket means you’re tied to the fate of one particular asset,” says Mr Stevenson.

“You could lose some or even all of your savings overnight by putting all of your money into one stock, whereas investing into a fund gives you exposure to the market, while spreading your risk across a range of companies.”

The third is making lump sum investments rather than spreading payments out during the tax year. Mr Stevenson continues: “Savers are likely to fare much better in the long run if they ‘drip feed’ money into an ISA, rather than leaving it until the last minute to make a lump-sum contribution at the end of the tax year. There are two clear reasons for this.”

The fourth is ignoring the risk threshold. “Most of us can think of more exciting ways to spend our time than sifting through investment research to find the best addition to our ISAs,” Mr Stevenson says.

“But when it comes to making decisions, it’s important to make the most of the information available, or you could lose out. Luckily, DIY investment tools are now easier to use than ever.”

The fifth mistake is relying on past performance. “When it comes to investing, it’s important to remember that previous performance is not a good guide to future performance,” he concludes.

“There are plenty of examples of stocks, sectors and indeed fund managers with strong track records and subsequently disappointing performance. One of the main reasons why bonds have been the asset class of choice for the past few years has been investors’ tendency to extrapolate the recent past into the future.”

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