A Stocks and Shares ISA can be a fabulously rewarding thing. But for many investors it may not turn out that way. Partly that reflects the approach someone takes to their ISA.
Here is how I go about trying to build the perfect Stocks and Shares ISA.
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Step 1: deciding how much to invest
There is an annual allowance for how much someone can invest in their ISA. I would be happy to take full advantage and invest £20k annually if I could. But investors need to be realistic about their own situation and financial circumstances.
So I try to invest what I can while juggling all of life’s other financial needs. And that amount is not necessarily the same from one year to the next.
Step 2: picking the right ISA
With so many Stocks and Shares ISAs available, I want to make sure I am using one that suits my own needs and objectives.
Even what seem like small fees and charges can add up over the course of time and eat into my investment returns.
Step 3: setting investment goals and choosing an approach
What works for one investor may not suit another. We each have our own goals, risk tolerance, timeframe and approach. For example, some investors like to stick to dividend shares, but in my ISA I have a mixture of growth and income shares.
I think a key part of trying to invest successfully is sticking to what I know (what Warren Buffett calls an investor’s “circle of competence”).
Step 4: building a portfolio
Part of my risk management approach is to make sure my ISA is always invested across multiple shares not just a single great hope, no matter how promising it may seem.
I aim to hold shares for the long term, so I am willing to spend a lot of time researching before I buy (and sometimes holding on even for years until I can buy at what I think is an attractive price).
As an example, consider Cranswick (LSE: CWK).
While you may not be familiar with the name, you likely are familiar with the food producer’s products and may well have eaten its sandwiches or other items many times without knowing who made them.
I like the business. The market is large and resilient. Cranswick has built economies of scale and long-term supplier relationships. It has a network of factories that enable it to serve large grocers nationwide and has proven its business model.
Last month, it reaffirmed its guidance for full-year performance. It grew its annual dividend last year by 13%, making for 34 years of continuous dividend growth. Yum!
One risk I see is weak consumer demand, which could pose a threat to sales volumes.
Still, at the right price, I will happily buy Cranswick shares. But for now the company is on my watchlist but not in my Stocks and Shares ISA, as the price is too high for my tastes.
