Making a Million Using Stocks and Shares ISAs - Part 11 of 26
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Investment Fund on 3rd March, 2010.
Tags: investment fund, isa, isa trend investing, liquid millionaire, stock market.
Over the last few months, I’ve been writing an ISA Trend Investing Guide that shows you how you could make a million using ISAs.
Over the next few weeks/months, I’ll be giving you an exclusive sneak preview before the main newspapers get their hands on it because I suspect that some time in the future, you’ll be seeing a copy inside your favourite weekend broadsheet.
In last week’s blogs, continued to share with you the 7 lessons about how the stock market works and in my previous blog I covered Lesson 6: Watch the price and volume action.
This week, you’ll learn the seventh and final lesson before moving onto some more juicy stuff about ISAs.
Let’s commence.
Lesson 7: In bear markets, you switch (not sell) from your high quality investment fund into a cash based fund
When you notice that the market trend has changed from up to down, you bank your profits by switching out of your high quality investment fund and into a cash based fund such as Fidelity’s ISA Cash Park. This helps to protect against future losses because of the trend change. This is when you then simply sit, wait and be patient.
Bear markets don’t last as long as bull markets and so you should be parked in a cash-based fund for no longer than 9-18 months.
Why do you do this?
The reason is simple. Because you learned earlier that three out of four stocks (and funds) move in the same direction as the market, and because you’ve learned that markets work in cycles (bull market - bear market - bull market - bear market and so on), it means that ideally in bear markets (down markets) you want to move out of equities and into the safety of cash.
Many UK investors don’t realise that it is possible to do this.
Some mistakenly think that once you are invested in a fund, you have to stay in that fund. That’s nonsense.
Some wrongly think that to switch into a cash-based fund would adversely affect their ISA allowance. That’s also warped thinking.
To do this correctly, you have to remember that when you are dealing on your ISA account, it’s not about selling – it’s about switching.
You see, if you sell, then you lose all your annual ISA allowances that you’ve built up over the years. But when you switch, your ISA allowances remain intact.
Fidelity offer a way of temporarily parking your ISA investments into a cash fund. This can be extremely useful if you believe that the market trend is downwards, and is going to continue to head lower in the future.
By parking your money in cash on a temporary basis, it means that even if the market crashes, your money will be safe. In fact, even though equity (stocks and shares) ISAs could be dropping like stones, a cash park will actually be rising in value.
In Friday’s blog I’ll be moving onto some more juicy stuff about ISAs and starting by comparing the differences between Cash ISAs and Stocks and Shares ISAs.
Find Out More
In the mean time if you would like to find out more about how you can make a million pounds through using an ISA, please click here for a FREE sneak preview of my book, Liquid Millionaire.
Happy reading!
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
Please Note: As always, let me remind you that I am not a financial adviser and therefore not authorised to give advice on what investments to buy or sell.
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