Each year, new investors pop up who decide that now is a good time to open a Stocks and Shares ISA. Even though I’ve had mine open for many years, the principles of how I’d invest £10k in an ISA still hold true. So were I in the new cohort of retail investors, here’s how I’d go about allocating the money right now.
Understanding the ISA benefits
Before I discuss the specific stocks, it’s key for me to appreciate why I’m using an ISA in the first place. After all, I can open other investment accounts with brokers that can give me the same access to buying stocks.
I find that the biggest benefit on offer is the tax wrapper. This means that for any profit I make within the ISA, I don’t have to pay capital gains tax. It also means that when I get paid a dividend, it isn’t liable for dividend tax even if I’ve exceeded my annual allowance (£2k).
Clearly, if I’m serious about wanting to generate long-term gains from both capital appreciation and dividend income, an ISA makes sense.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Putting £10k to work
Each year I’m allowed to invest £20k within the ISA. But this doesn’t mean that I’d invest £10k all in one go. Given the uncertainty at the moment, I can’t accurately say that the market will only rally from here.
With that in mind, we have nine months left of the ISA year, so I’d put around £1,100 to work each month. Within the month, I’d try and find between two and four stocks that I think are worthy of investment.
One reason for splitting up the money is that I can average my buying prices over time. Put another way, it gives me several opportunities to try and buy at a good time, rather than putting all the pressure on just one shot.
Secondly, mixing up the stocks I buy provides me with diversification. Instead of putting £10k in Apple or Tesla, why not own half a dozen tech names instead? Then if one underperforms, I can cushion the impact overall.
A Stocks and Shares ISA for the future
In terms of the specific stocks I’d buy, I want to focus on shares for the future. My ISA is something that I might be starting now, but it’s something I’ll have for the rest of my life. So I don’t want to invest in something that’s just a flash-in-the-pan.
Instead, I like investing in themes such as renewable energy, healthcare and finance. Each of these three areas should have growth potential for the next decade. SSE, AstraZeneca and NatWest Group are good examples I like as starting points for individual shares in those sectors.
I agree that I can’t predict the future perfectly. But the beauty of the ISA is that each year, I can invest more money. So over time, I’ll have a blended portfolio of ideas from the past and present.
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Jon Smith has no position in any shares mentioned. The Motley Fool UK has recommended Apple and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.