I want to start investing in specific ETFs but I cannot choose with my robo advisor

17 October 2022

Question by Naomi

I have recently opened a stocks and share ISA with a Robo advisor.

I am now wanting to start investing in specific ETFs but I cannot choose with the robo advisor.

Do I start with a GIA this year and then switch my ISA to one that I can actively manage in the new tax year? I will not be investing huge amounts into ETFs at this stage, so am unlikely to make any taxable profit, but I’m really keen to start getting the feel of it.

Thank you

Answered by

Hi Naomi,

Thank you for your question.

You are only able to open one ISA each tax year, so if you opened your existing Stocks and Shares ISA in the current 2022/23 tax year, you will need to wait until 6th April before you look to set up a new ISA. If you are really keen to start self-managing some investments you could look to set up a GIA this tax year which you would fund as an alternative. You have your capital gains allowance of £12,300 which can be used to offset any realised gains within the account however any other income (i.e. interest or dividends) may need to be declared and may be taxed.

On 6th April you could then establish a new self-managed ISA which you can transfer your existing ISA into (with no impact on your allowance for the year). You could also look to move the funds in your GIA into the ISA to ensure the funds benefit from the tax-efficient ISA structure however you will need to be mindful of your £20,000 ISA allowance.

When it comes to self management it is important you consider the amount of risk you are taking with your funds. We usually assess this by considering three key things:

  • Your attitude to risk which represents how comfortable you are seeing your investment go up and down in value.

  • Your capacity for loss which is how much risk you can afford to take. This will come down to timeframe and your objectives for the money.

  • Risk required which represents how much risk you need to take with the money to achieve your objectives.

Once you have determined your overall risk appetite, you can then establish a suitable asset allocation for your GIA and ISA money. Risk is managed by diversification, and it is important you understand how different assets can impact the risk you are exposed to, and the spread of assets which would be suitable to achieve your assessed attitude to risk. It is then crucial that you monitor and realign your investments on a regular basis (i.e. annually).

I would also encourage you to consider how these investments fit into your overall plan. The first step when considering your overall financial security is to make sure that you are retaining an emergency cash buffer. Whilst this money is not exciting or working particularly hard for you, it is there to provide you with protection and security. You may also want to consider the option of investing in a pension to build your longer term savings, however, this will depend on your employment status, age, and need to access capital.

I would encourage you to have a conversation with a financial adviser about your wider financial planning strategy. It is great that you are starting to make use of your ISA allowance and that you are investing for the long term, however it is important to make sure you are not missing out on any other opportunities.

I hope this helps.

All the best,