Like many other people, I invest money through a Stocks and Shares ISA. Right now, if I had a spare £1,500 I wanted to use buying shares in the ISA, here is how I would go about it.
Focus on my objectives
First I would decide what I wanted to try and achieve with the money. Should I target growth, income or a combination of the two?
I have been buying income shares lately and continue to see some attractive dividend yields available to me from companies I like. For example, M&G is yielding 8.4% while British American Tobacco offers 6.7%. I own both shares but would consider buying more. One risk is always whether a company’s profits can support a dividend in future, so I will be paying attention to M&G’s interim results in the coming days to see whether it is struggling to keep customers like some rivals.
There are also some companies I do not own but am tempted to invest in at the moment. For example, housebuilder Persimmon and its 12.5% yield keep catching my eye. There is obviously a risk that housing sales could fall – and there was already some evidence of this in the builder’s most recent results. However, I think that risk is priced in to the shares at their current level.
Although I would be tempted to try and lock some of these dividend yields into my Stocks and Shares ISA, I also think there are some strong growth stories ‘on sale’ right now. ITV has seen revenues in its production business grow strongly, but its shares are still 37% lower than a year ago.
Software company Kainos is down 17% in a year. But does its growth profile justify a price-to-earnings ratio of 50? That is more than I would be willing to pay. Even for companies I think have strong growth prospects, I think it is important to pay attention to valuation. A good company bought at too high a price can make a bad investment.
Diversifying my Stocks and Shares ISA
Having decided my investment objectives and shortlisted what I felt were great businesses selling at attractive share prices, I would then make my shopping list.
To reduce my risk, I would diversify my purchases. With £1,500 I could invest £500 in each of three businesses. That would give me some diversification.
Looking at my own recent purchases, I have been more focused on income than growth. Given some of the dividend opportunities available, I would probably split the £1,500 today by buying £1,000 of income shares and £500 of growth shares for my portfolio.
Of course the split is not always precise. I see ITV as growth share, for example, but with its current dividend yield of 7%, I could equally well think of it as an income share. Hopefully, with the right choices, I could see long-term growth in the worth of my Stocks and Shares ISA — while also receiving income in the form of dividends.
The post £1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it appeared first on The Motley Fool UK.
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C Ruane has positions in British American Tobacco, ITV, and M&G PLC. The Motley Fool UK has recommended British American Tobacco, ITV, and Kainos. 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.