We get a whole new ISA allowance on 6 April. If I had the maximum of £20,000 to invest in my next Stocks and Shares ISA, what would I buy?
Even if I don’t have £20,000 to invest right now, I think it still helps me focus on how I should invest over the coming 12 months.
So what would be my priorities starting a new £20,000 ISA? From my investments, I want long-term income. I want safety. And I want diversification.
Investment trusts
First, a quick comment on diversification. I won’t diversify just for the sake of it, and I won’t invest in a share unless I am 100% certain I want to own it. For me, diversification comes mainly from buying investment trusts.
I think I will always hold shares in City of London Investment Trust. The dividend is close to 5%, and it has increased every year for 55 years. Among its top 10 holdings, it counts Diageo, BAE Systems, Tesco and National Grid. That’s nicely diversified, though it is open to general FTSE 100 sector risk. And dividend rises are not certain.
I want to add another investment trust to my ISA, even if I don’t get close to the full £20,000. I’ll pick from global trusts with strong dividend records. Candidates include Bankers Investment Trust and Alliance Trust.
There’s one popular investment trust I won’t buy. It’s Scottish Mortgage Investment Trust, and it’s all about valuation. Scottish Mortgage invests in high-flying US tech stocks, pharmaceuticals, and things like that. It holds Tesla, for example, on a P/E of over 200. It might be fine for those seeking growth investments and happy with the risk. But it’s not for me.
Favourite sectors
Some of the £20,000 would next go into my favourite sectors. I have almost always held a bank and an insurance company among my investments.
The finance sector can be volatile and has had its booms and busts. But I reckon that, assuming worldwide economies continue to grow for the long-term, those offering financial services can only do well.
Among the banks, I’d pick between Lloyds, Barclays, and HSBC. What about Insurers? I currently own Aviva, and I like the look of Direct Line these days too.
I’m also bullish on the housing market. It can be cyclical. And we see pressures on the market from inflation and interest rates. But in the UK we face a chronic housing shortage, which isn’t going to end any time soon.
For the long term, I would always hold Persimmon or Taylor Wimpey. And I would accept the risk of short-term volatility.
Dividends from £20,000
The rest of my £20,000 would go on a variety of other income stocks offering not just high dividends today, but also well-covered, progressive dividends. In 10 years’ time, a modest but progressive dividend could be worth a lot more than a currently bigger one that doesn’t grow.
Candidates include National Grid, Unilever, British American Tobacco and even BP and Shell, for very well-covered payments.
I wouldn’t invest a whole £20,000 ISA allowance in one go, though. No, I’d spread it out over the year to try to even out the unpredictable ups and downs of the market.
