These are uncertain times, but that’s no reason to choose cash over the markets if you want decent returns

This year you can invest £20,000 in an Isa — up from £15,240 last year. It is an extraordinary opportunity to build a tax-free lump sum, but many will not make the most of it because they are choosing to invest in cash, despite negligible returns.

The general election and its impact on the stock market will accentuate these concerns. However, if you are prepared to be bold, you should consider a stocks and shares Isa. If you choose funds that hold commercial property, commodities, company shares and bonds (the fixed-interest stocks issued by companies), you will be protected from the fluctuations in share prices.

Russ Mould, the investment director of AJ Bell, the wealth manager, says: “By investing in different areas you spread risk and should not suffer a damaging loss if a stock market crash or political coup intervenes.”

Go global
Spread your money across different regions, says Brian Dennehy, the managing director of Fundexpert, the fund research website.

He says: “There are seven times as many income stocks outside the UK as within it. High-spending, middle-class consumers are the key to economic growth and in less than 20 years Asia will have ten times more middle-class citizens than the US, and five times more than Europe. That is an extraordinary rebalancing that will drive company profits and dividends for decades.”

Hold some income stocks
Income stocks are attractive, whether you want to take a regular income from them or reinvest the money. In good times the dividends provide a boost on top of any share-price growth, while in bad times the pain of market falls is mitigated by the payment of dividends.

Don’t do things last minute
You can benefit from investing in an Isa early in the tax year because your money has more time to build.

Think long-term
Don’t be spooked by day-to-day market falls; they are part and parcel of investing in stocks and shares, says Justin Urquhart Stewart, the co-founder of Seven Investment Management. He says there will always be at least one or two points each year when markets are down. “That is when you should be thinking of buying more shares. If you were in a shop and it marked down the prices in a sale, you would be tempted to take advantage of those prices. People are reluctant to do the same with shares, but the same principle applies.”

To benefit from any market falls, Mr Urquhart Stewart says keep a cash reserve in your stocks and shares Isa, so that you have money available when prices tumble.

Expect the unexpected
The Leave vote in the UK and Donald Trump’s win in the US presidential elections was a lesson that the only thing you can be certain of is uncertainty.

The most effective way to guard against this is to hold a spread of investments. Oliver Clarke-Williams, a research analyst at FE, the financial research group, says: “Diversification may not be exciting, but by following this route you will insulate yourself from the worst of financial shocks.”

High risk doesn’t mean high returns
The conventional thinking is that if you are prepared to take more risk with your investments, you should ultimately reap higher returns. However FE’s research shows that in the past year there was little correlation between risk, as measured by volatility (market ups and downs) and return. Only 38 of the 266 funds (14 per cent) that had a higher volatility than the FTSE all-share index outperformed the index. In other words, many of the funds with a high volatility failed to match this with better than average performance, while many of the funds that outperformed had low volatility. So good investment returns don’t automatically have to come with high levels of risk.

Beware of a retreat to cash
The financial turmoil of the past 12 months has led some investors to seek the safety of cash while they wait for the stock market outlook to become more stable. The danger of this approach is that you may miss out on good returns while you are sitting on the sidelines.

FE has calculated that if you took £10,000 and placed it in a FTSEall-share index tracker fund for five years, it would have a 76 per cent chance of beating the return on £10,000 placed in a long-term savings account.

Don’t rely too much on forecasting
The past year offered many attempts to predict the market, but few analysts got it right. The experts at FE say that when Bloomberg asked economists which emerging economies would be 2016’s worst performers, they came up with Brazil. In fact, the MSCI Brazil index was up 36.8 per cent in local currency.

Don’t second-guess the market
Jason Hollands, the managing director of Tilney BestInvest, says that in the run-up to the EU referendum investors were overcautious, moving out of UK stocks and buying absolute return funds. “Short-term sentiment was driving decisions and in a moment of panic many investors indulged in a sell-off of UK stocks, which was the wrong call,” he says. “After a brief sharp fall, the market moved strongly upwards. Investors should take on board the message of Corporal Jones in Dad’s Army — don’t panic. Those who kept calm and held on to their stocks through the market turbulence did very well.”

Don’t lump all emerging markets into the same category
“In emerging markets, it is not all about stock picking. Getting the right country allocation could be as important,” says Charles Younes, a research manager at FE. “In the year to April 2017 the worst-performing country out of the BRIC nations [Brazil, Russia, India and China] was India, which produced a return of 35 per cent. It was out of favour with investors impatient over the slow pace of reforms. Those who invested in Brazil reaped returns of 61 per cent.”

Isas in numbers
The amount of money invested in Isas is £518 billion — more than the GDP of Switzerland. And did you know that Londoners are the least likely in the country to save into an Isa, while those living in the southwest of England are most likely? We know this because HMRC has published a document filled with data on our Isa habits over the past three years. Other things Isa facts:
● More than 21.6 million people have one.
● 12.7 million adults invested in one in 2015-16, slightly down from 13 million the previous year.
● Those with an annual income of between £10,000 and £19,999 are the most likely to invest in an Isa, while those with an income of £100,000 or more are the least likely.
● Just under 80 per cent of Isa money is invested in cash, with the remainder in stocks and shares.
● The average amount invested in 2015-16 was £6,307.
● Junior Isas are increasingly popular: 740,000 accounts had money paid in during 2015-16, up from 510,000 the previous year.
● More women than men invested in an Isa in 2014-15 — 6.4 million compared with 5.8 million.
Jessie Hewitson

Golden rules for Isa investing
● Never invest in anything you don’t understand. This is the motto of Warren Buffett, the world’s most successful investor, and if it’s good enough for him, it’s probably good enough for you. Russ Mould says: “There is no shame in admitting that you do not understand the latest technology gadget, but there is no excuse for pouring cash into a stock without really knowing what it does, whether it is good at it or whether the shares are cheap or expensive. That is just gambling, not investing.”
● Keep an eye on costs. One of the best ways of boosting your investment returns is to keep your costs as low as possible, says Mr Mould. He says: “Every time you click on the buy or sell button you are incurring costs, which could include broker commissions, bid-offer spreads, stamp duty and other charges. That is all money out of your Isa and into someone else’s pocket, so don’t overtrade.”

The experts’ picks
Mr Dennehy of Fundexpert goes for Schroder Income fund and Liontrust Asia Income fund. He says the Schroder fund has a proven track record on growing its dividend and a very clear investment strategy.

The Liontrust fund has strong payout growth and good capital growth. The Asia region is relatively cheap, with stocks that have decent yields and growth potential.

Mr Mould of AJ Bell picks Foreign & Colonial investment trust, which has a wide spread of holdings that includes shares and private equity, and has increased its dividend payout in each of the past 46 years.

His other pick, Temple Bar investment trust, focuses on companies that are at present undervalued, but that have the potential for recovery. It yields 3.2 per cent.