With this year’s deadline for ISA contributions fast approaching, I have been thinking about how I can best use the opportunity. One thing I like about a Stocks and Shares ISA is that it can be a useful vehicle for me as I try to build wealth over the long term.
If I had a spare £20,000 to invest in my ISA and wanted to try and grow my wealth over time, here is how I would go about it.
Getting started
The first thing, of course, would be actually having a Stocks and Shares ISA. If I did not have an ISA already I would open one, so I could put the money into it now, before the looming contribution deadline.
Pick an investment strategy
I would want to buy and hold shares for years rather than constantly messing around with what was in my ISA, racking up dealing charges at the same time.
So I would set out an investment strategy I felt suited my objectives and risk tolerance. I could then use that to help me decide how to invest my cash.
Growth, income or both
For example, I could try to focus on building dividend streams, either to withdraw or else leave inside the ISA and compound. Alternatively I might decide to focus on massive operators I think have further growth prospects ahead, such as Amazon and Alphabet.
Another approach could also be based around growth, but targeting small and medium-sized firms rather than the big boys. Holding such shares in my ISA for years, I would have the sort of timeline needed in many cases for a young business to grow into its potential.
These are not mutually exclusive strategies. I could mix and match, for example allocating £12,000 to income shares and £8,000 to growth ones. The key thing is deciding what I think is the most suitable strategy for me. That will give me a yardstick against which to measure my investment choices down the line.
Hunt for shares
Using that approach, I would scour the market for shares that I felt could be a good fit. In each case, my focus would be on buying into great businesses with attractive share prices. I have a bias for proven business models, but with growth companies in their early stages finding such proof of profitability can be tricky. Many ultimately successful firms are loss-making in their formative years.
The good thing about a Stocks and Shares ISA is that, having put my money into it, I do not need to invest it immediately. Indeed, I would be in no rush.
At the moment, I do see some great bargains in the UK stock market. But if I did not, I would simply wait patiently to invest – for years if necessary – rather than lower my standards. If I can find truly brilliant shares to buy, I would then happily wait for time to work its magic.
