The big British ISA is coming, but big investment gains are being made in the US

Make-your-mind-up-time approaches. You still have 28 days to invest your Isa (private savings account) tax-free assets.

In the next tax year, investors will be tempted by the Great British Isa, which allows an extra £5,000 of UK shares on top of the existing £20,000 allowance.

However, few details are available at this stage. And for those looking to invest this year’s allowance, there are some tough decisions regarding the US, which has more world-leading companies than any other market. Investors looking at the US will likely be torn between the fear of missing out and the fear of buying at the peak.

There is a strong case for ‘feeling the fear and doing it anyway’, as American self-help author Susan Jeffers advises. Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund, which owns US tech giants Alphabet and Microsoft, says: ‘The risk is greater if you don’t invest or are invested in the US.

“The country has the best entrepreneurs in the world and an economy with the best chance of remaining resilient under the current circumstances.”

Raising the flag: Investors looking at the US will likely be torn between the fear of missing out and the fear of buying at the peak

As Bestinvest’s Jason Hollands notes, US markets tend to boom in presidential election years: ‘In the 19 elections since the end of World War II, the S&P 500 has delivered positive returns all but two times – and that was in 2000, when the internet bubble burst and 2008, at the height of the global financial crisis.’

But there is still nervousness, after the S&P 500 index rose 28 percent in the past 12 months to 5,130.95. This is largely due to the excitement surrounding the AI ​​revolution, which has seen shares of the Magnificent Seven – Mag 7 – tech giants double or nearly triple in the past year.

The ‘Mag 7’ are Alphabet, Amazon, Apple, Meta, Microsoft, Tesla and semiconductor maker Nvidia.

AI data center server specialist Super Micro Computer recently joined the S&P 500 after a 276 percent rise in its shares since early January.

This week, Bank of America raised its forecast for the S&P to 5,400. But the Shiller Cape ratio – a guide to future returns – sends danger signals.

Against this backdrop, American investors are Team Kolanovic or Team Kostin. Marko Kolanovic, the guru of JP Morgan Chase & Co, warns that a bubble is forming. David Kostin, his counterpart at rival investment bank Goldman Sachs, says even technology stock valuations are “supported by fundamentals.” If you side with Kostin and can afford to take the longer view, you should still be prepared for bouts of nervousness.

If Donald Trump is elected president in November, he could try to limit the influence of Big Tech. Trade ties could hit further snags, with tariffs on imports, including those from China, set to hit 60 percent.

Hollands says: ‘It is difficult to know how these factors will play out in equity markets, but they clearly introduce a degree of uncertainty.

“The S&P 500 is trading at prices that are 21 times expected earnings for the next twelve months – that’s 33 percent above the 20-year average of 15.8 times.

‘On a price-to-earnings basis, S&P 500 companies trade at twice the ratio of those in Britain.

‘If you buy US shares you pay twice as much for their profits than if you buy UK shares.’

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The Bloomberg Magnificent Seven Total Return Index shows that these stocks are trading at 38 times their earnings, indicating that a decline in prices is likely. Still, as Smit argues, the number of people waiting for weakness could soon push prices back up. In light of this, you need to develop a strategy for your US Isa adventure.

There is no obligation to spend the full £20,000 on this market. You can invest some, or start a monthly contribution plan in a fund or trust. This is an excellent route for younger investors.

Well-known US and global investment funds such as Alliance, F&C and JP Morgan American have significant Mag 7 interests.

Allianz Technology (where I am a holder) and Polar Capital Technology focus on Big Tech.

But if you already own these trusts, diversification makes sense as, if rates are cut, the rally could spread from the tech sector to other sectors.

Beneficiaries could include stocks from the “affluent boomer renaissance.” The view is that this target group will spend a lot of money on holidays and healthcare, including weight-loss medicines.

It has liquidated stakes in cruise operator Carnival and pharmaceutical group Eli Lilly.

David Harrison, manager of the Rathbone Greenbank Global Sustainability Fund, says some healthcare stocks have been hit by concerns that weight loss drugs could reduce the need for other treatments. He adds: ‘These falls are exaggerated.’

Funds that offer a broad diversification of US exposure include Premier Miton US Opportunities and the Invesco FTSE RAFI US 1000 ETF (exchange traded fund).

Take a deep breath and trust that these US-born companies will prove to be exceptional.

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