Use your Isa and use it well

Making sure you use your full Isa allowance is the easy bit when it comes to growing your wealth. Knowing exactly what to do with it is where it gets tricky, says Merryn Somerset Webb.

A few numbers for you. Let's say you'd opened an individual savings account (Isa) in 1987. From then on, you used your full allowance every year and put the money into the same fund every year a total contribution of £192,480. How much money do you think you would have now?

According to numbers from, if you had put it into the Fidelity Special Situations fund, you would have £1,160,000. If you had gone for a FTSE 100 tracker, you would have £514,000. If, on the other hand, you had put the money into Scottish Widows Japan Growth, you would now be sitting on a loss of more than £20,000.

There are two lessons here. First, use your Isa allowance (that million-odd quid the Fidelity investor would have made? It's all tax free). And second, use it well.

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The first is clearly a little easier than the second. But this year, there may be hope for anyone still holding Japan funds (we haven't quite been recommending them since 1987, but most MoneyWeek staff have been holding something Japanese in their Isas for a few years now).

The Nikkei 225 is up around 35% in the last three months or so, and there seems to be a good chance that it has further to go. Haruhiko Kuroda, the incoming Bank of Japan chief, has said all the right things about banishing deflation and the falling yen should on Daiwa Securities' estimates push up profits for companies listed on Japan's Topix index by some 20% over the next year.

At the same time, as Peter Bennett of Walker Crips stockbrokers points out, market technicals are "very favourable". Foreign institutions, for all their talk, still have very little money in Japan, while domestic investors have almost nothing in their own equity market.

Japanese pension funds are 88% in bonds and only 12% in equities. It is a similar story for households: some 56% of Japanese household assets are in cash or on deposit (that number is 15% in the US), while a mere 10% is in shares (45% in the US).

This has made good sense for ordinary Japanese people for some time. If there isn't any inflation, not getting much of a positive nominal return on your cash is by-the-by. And deflation is effectively a tax-free rise in income. But if inflation suddenly moves to 1% or 2%, that equation changes. Cash will look very unattractive. And equities trading on very low valuations and yielding 2% (and rising) will look very attractive.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.