Image source: Britvic (copyright Evan Doherty)
A stocks and shares ISA is well suited to a long-term investment time frame. Hopefully, over the coming years and decades, my tax-free ISA will increase in value. That could be partly due to me adding more funds to it.
But I think it's also possible to try to increase the value of my ISA even without adding a penny in new funds.
Here are three moves you could make.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
1. Don't withdraw a single cent
Shares within an ISA can sometimes pay dividends. These can be removed from the ISA container.
It makes sense to me why people do this. Maybe they have an unexpected bill to pay or want some passive income streams.
But by leaving those dividends inside my ISA, I would have more to invest even without contributing new money.
2. Sell highly overvalued stocks
As an investor, I think it's important to have an idea of what we think any stock we own is worth. Different people's opinions can and do vary, which is why we have a stock market. But without having an idea of what we think a stock is worth, it's impossible to judge whether it appears undervalued or overvalued.
Sometimes the stocks I own can seem overvalued. From time to time they come to look very overrated. In such a situation, by selling those shares I can convert them into cash and use it to buy other shares that I consider much more attractive.
In a bubble, overvalued stocks can become even more overvalued. By selling, I lose some potential profits. But I think it's wiser to take advantage when I think a stock is seriously overvalued, rather than risk waiting and discovering that a sudden drop brings the valuation back down to earth.
3. Consider selling the weakest stock
As a prudent investor, I naturally keep my stocks and Shares ISA diversified. At any given time, I will feel better about some stocks I own than others. Sometimes, as investors, we become emotionally attached to our investments.
However, rationally it makes sense to review your ISA holdings from time to time, identify the worst stock at the time and then decide whether it is worth holding on to or simply selling it even at a loss.
For example, I still hold on to stocks in boohoo (LSE: BOO). I still like the company's variety of brands, its large customer base and its proven business model.
But Boohoo's share price has been in free fall. It's down 14% this year and a whopping 88% in the last five years. Even a recent increase in price is not due to business performance but rather rumors of a possible breakup.
Why haven't I sold? I have been judging that boohoo's problems can be solved and that their business approach can again deliver results in the future as it has in the past. But the business trend has been alarming (revenue fell 17% last year) and the stock has fallen sharply in recent years.
Sometimes things get better in the stock market for a struggling company, but often they get worse. I'm thinking of selling my Boohoo shares if there's no clear evidence that business will improve this year.
