For UK savers, the choice between stashing money in cash or investing it has delivered starkly different outcomes over the past year. Stocks and shares ISAs significantly outperformed cash ISAs last year, with average growth of over 11% compared to returns of just 3.48% on cash holdings, according to analysis from investment platform eToro. This performance gap is set against a backdrop of UK inflation hovering around 3%, a rate that erodes the real value of cash savings.
The enduring appeal of the ISA wrapper
The start of the new tax year brings a fresh £20,000 allowance for individuals to shelter money from the taxman, a perk gaining increased importance. The UK government has been raising capital gains tax rates and reducing the annual tax-free allowance, making the tax-free growth and income within an ISA increasingly valuable. The numbers speak for themselves: the average stocks and shares ISA account now holds over £65,000, compared to less than £13,500 in the typical cash ISA, as noted by eToro’s UK managing director Dan Moczulski.
Moczulski, who has held senior roles at firms like IG Group and City Index, points out that with inflation forecast by the Office for Budget Responsibility to potentially rise to between 3% and 3.5% later this year due to energy prices, the erosion of cash’s purchasing power is a real concern. For those prepared to invest for the long term, the historical data is compelling. For instance, with dividends reinvested, the FTSE 100 delivered an average annual return of 9.5% from 2016 to 2025.
Expert selections for the new allowance
With markets remaining volatile, selecting investments can be daunting. We asked five investment professionals for a single fund they would consider for their own ISA this year, focusing on their rationale and the specific opportunities—and risks—each one presents.
Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC), selects the Scottish Mortgage Investment Trust. Managed by Baillie Gifford, this FTSE 100-listed trust aims to invest in “companies shaping the future,” including private holdings like SpaceX and Revolut alongside public giants like Meta and Nvidia. The trust trades at a 5% discount to the value of its assets and charges 0.31% annually. Its high-risk, long-term approach has delivered a 68% return over five years. The potential here is tied to the growth of its innovative holdings; for example, SpaceX, which reported $15.5bn revenue for 2025, has discussed a potential $1.5tn IPO valuation. However, the trust’s focus on high-growth, often unlisted companies means its value can be extremely volatile, making it unsuitable for the risk-averse.
For a dramatically different approach, Alan Miller, chief investment officer at SCM Direct, advocates the iShares Over 15 Years Gilts Index Fund. This exchange-traded fund tracks UK government bonds with long maturities, holds 27 gilts, and carries a low 0.1% charge and a Morningstar Gold medal. Miller highlights the chance to lock in a yield to maturity of nearly 5%, tax-free within an ISA, with gilt yields near multi-decade highs. The primary benefit is the perceived safety of UK government debt and predictable income. The risk, however, is interest rate sensitivity. While the fund is flat over one year and up 9% over five, its performance suffered when rates were low. If rates rise further, the capital value of the bonds could fall, though the locked-in yield may compensate long-term holders.
Paul Agnell, head of investment research at AJ Bell, opts for the Man Income fund, managed by Henry Dixon and Jack Barrat. The strategy focuses on undervalued UK companies that pay a decent yield, with managers scrutinising cash flow and assets to avoid “value traps.” The fund is up over 10% in early 2026 and gained 28% in 2025, boosted by holdings in banks like Barclays. The benefit is exposure to a UK market seen as full of unloved opportunities, with a focus on income and capital preservation. The 0.9% charge is higher than a passive fund. The risk is that the “value” opportunity may persist if the UK market continues to be overlooked, and the fund’s concentration in financials—Barclays is currently subject to a securities class action investigation concerning a collapsed lender—adds sector-specific risk.
Philippa Maffioli of Blyth-Richmond Investment Managers chooses the Murray International trust for its global diversification and focus on “dependable cash flows and sensible valuations.” Yielding around 3.5%, it is not tied to the UK market. Managed by Martin Connaghan and Samantha Fitzpatrick, it charges 0.5% and is up 60% over five years. The key benefit is its defensive, income-focused approach across global markets, offering a cushion during volatility. The risk is that by not chasing high growth, it may lag behind in roaring bull markets, and the income is not fully inflation-protected.
Finally, Jonathan Moyes, head of investment research at Wealth Club, highlights Pantheon Infrastructure Plc, a FTSE 250 investment trust. It co-invests in assets like data centres and renewable energy, aiming for equity-like returns with diversification from stock markets. Shares trade at a 13% discount to net asset value. The trust reported a 14.4% net asset value return for 2025. The benefit is access to real, inflation-linked infrastructure assets with long-term contracts. The high risk is evident in its 1.29% charge, its relative newness, and the fact that investment trust discounts can persist or widen. It is, as Moyes notes, strictly for a diversified portfolio.
Navigating the risks for long-term gain
While these picks illustrate a range of strategies, they all share the common ISA benefit of tax-free returns. However, each carries distinct risks, from the high volatility of growth stocks in Scottish Mortgage to interest rate moves impacting gilts, and the sector-specific or discount risks in the other funds. It is crucial to remember that past performance is no guarantee of future results. Investors must also consider platform dealing charges, which can erode returns over time. As with all investing, capital is at risk, and you may get back less than you invest.
