ISA investing: Here are 7 deadly sins you might want to avoid

The seven deadly sins: lust, gluttony, greed, sloth, wrath, envy, and pride. We’ve all been guilty of at least one or two over the course of our lives. 

Whether it’s overindulging your sweet tooth with one too many slices of cake or putting off those long-ignored household chores, it is easy to be occasionally tempted off the good and narrow path.

You might even find the seven deadly sins coming between you and your investments, such as your handling of your ISAs, and the results could be costly in the long run.

As Easter approaches and the new tax year is set to begin, discover how you can be more saint than sinner in the handling of your ISA investments and seven ISA sins you’ll likely want to avoid.

The 7 deadly sins of ISA investing and how they might affect your investments

1. Sloth — don’t forget to make the most of your allowance and to do your homework 

ISAs can be incredibly tax-efficient vehicles and can help reduce your potential tax liabilities in several ways, such as:

• Reducing Capital Gains Tax (CGT), as gains made on Stocks and Shares ISAs aren’t subject to CGT
• Ensuring any dividend income inside your Stocks and Shares ISAs is tax-free
• Exempting any interest earned within your ISAs from Income Tax.

So, it is vital you make the most of your annual allowance and take full advantage of your ISAs benefits.

Your annual ISA allowance is £20,000 in the 2022/23 tax year and holding surplus funds elsewhere in accounts without the same level of tax protection could be costly.

It is also important that you don’t take the easy option and gloss over any essential research or necessary steps towards protecting your ISA investments.

2. Envy — don’t let the performance of others skew your decision-making

It is easy to succumb to envy when you see people you know, perhaps even colleagues or loved ones, succeeding without you.

“Herd behaviour” happens when investors opt to follow the opinions or choices of others, instead of making their own informed decisions based on evidence and data.

For example, you may see people moving their funds into a certain stock, and in the fear of missing out on any potential returns the collective group might make, you opt to follow suit.

However, this approach can backfire, as it did when the dot-com bubble burst or during the 2008 real estate market crash.

It is crucial you take a step back and view your investments logically rather than emotionally and avoid simply following the herd.

3. Greed — don’t put all your eggs in one basket and know when “enough is enough”

If an investment is performing particularly well, it might be tempting to increase your holding, and potentially make even greater returns. 

However, it is vital that you don’t neglect your overall portfolio by putting all your eggs in one basket. 

Diversification is key to a long-term investing outlook and provides a way for your portfolio to protect itself from sharp fluctuations in specific areas of the market.

It is also important to remember that your financial plan is orientated towards reaching your goals and it is okay to say: “Enough is enough”. Exposing your investments to too much risk could harm your long-term plans. 

4. Gluttony — don’t invest more than you’re able and forget to put aside vital savings

Seeing your investments make positive returns can be a satisfising feeling. However, moving too much of your wealth into investing rather than saving might be detrimental.

Remember: there can be too much of a good thing.

Before investing, you’ll likely want between three to six months’ worth of cash savings set aside in an emergency fund. So, if the worst should occur, and money is needed quickly, essential outgoings like rent/mortgage payments or utilities can be covered.

5. Wrath — don’t make emotional decisions regarding your investments

It is important that you don’t make emotional decisions regarding your investments and act through frustration, anguish, or fear.

In investing terms, the bias known as “loss aversion” could prompt you to sell off your investments when faced with potential losses, locking in what was initially a paper loss into an actual one. 

This can stop you from seeing your investment rebound over the long term when the market likely recovers.

Fear of losses might also make you overly cautious with future investments and not take enough risk, which can hamper your long-term returns.

6. Lust — don’t chase short-term gratification over building towards long-term goals

The instant gratification of making significant gains can be a tempting high. It might push you to actively chase trending investments or seek to outperform the market in the short term.

However, lusting over quick returns can make you lose sight of the core ethos of your financial journey — building towards your long-term goals. 

It is a patient process that can ultimately benefit from maintaining a level head and taking a step back to let the passage of time do its work.

Remembering to contribute regularly with routine payments into your ISA, and letting any dividends or gains be reinvested, can see significant compound growth on your investments that can be just as fulfilling as chasing short-term returns, albeit with far less associated risk.  

7. Pride — don’t be afraid to admit you need help and reach out for advice

It can be especially hard for those with knowledge, experience, and a lot of pride, to admit we might need help from time to time.

You shouldn’t be afraid to reach out for guidance and advice when facing challenges in life. 

Working with a financial planner can provide your long-term plans with a considerable boost and help with your overall emotional wellbeing.

Don’t let pride get in the way of ensuring you get the most out of your financial plans and stay on track towards reaching your long-term goals.

Get in touch

If you are unsure about the best way to approach ISAs and have any worries about your investment portfolio, you should reach out for advice by emailing us at mail@delaunaywealth.com or calling 0345 505 3500.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.