Building wealth inside a Stocks and Shares ISA is one of the simplest and most tax-friendly ways to invest, as every penny of growth and income is sheltered from HMRC for life.
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.
I always pick my own stocks, but for sheer novelty value I asked ChatGPT to design a balanced portfolio of five FTSE 100 companies that blend income with long-term growth. Did I agree with its conclusions?
FTSE 100 picks
First up was National Grid. I can’t say I was surprised. The utility is possibly the classic UK defensive stock and ChatGPT says: “It provides the power that keeps Britain’s lights on and pays investors a steady dividend yield of around 5.5%.”
As is often the case, ChatGPT is behind the times. Today, National Grid yields less than 4.1%. The chatbot also neglects one key risk: the utility is pouring tens of billions into the green energy transition and that could squeeze returns. Some investors still love it, but I’m wary.
Next up, Lloyds Banking Group (LSE: LLOY). The high street bank is another classic portfolio building block and lately the shares have been going great guns. The Lloyds share price is up 62% in the year, and 210% over five.
ChatGPT says: “For an investor drip-feeding into a Stocks and Shares ISA, Lloyds is not a bad way to collect a 6%-plus yield.”
Wrong again. The yield is now 3.6%, reduced by its rocketing shares. Keep up, ChatGPT! The dividend yield will recover though. It’s forecast to pay 4.05% in 2025, rising to 4.68% in 2026.
ChatGPT says: “With interest rates still relatively high, banks continue to make solid margins on lending.” That’s true, but it should have added: when interest rates fall next year, those margins could be squeezed.
It does warn that “Lloyds remains tightly tied to the UK economy, so a slowdown could quickly hit profits”. But it doesn’t mention that banks could be hit by a windfall tax in the Budget on 26 November. Investors may want to see how that pans out before considering it.
I’m worried about Diageo shares
ChatGPT got it wrong with its next pick, in my view, spirit giants Diageo. This is a stock I hold, but wish I didn’t.
The Diageo share price is down 25% this year and 52% over five. ChatGPT doesn’t mention that. Or the reasons, which are that the cost-of-living crisis is hitting sales of the premium spirits Diageo specialises in, and concerns that weight loss drugs and Gen Z sobriety will squeeze long-term sales.
It’s also gets the price-to-earnings ratio wrong, stating 20 when its 14. This makes its final conclusion, that it would “rather pay up for reliability than chase risky bargains”, rubbish. Diageo is not reliable, but risky. It may be a good recovery stock, but I wouldn’t include it in a ‘perfect’ portfolio.
ChatGPT supplemented those three with housebuilder Persimmon (getting the yield wrong again) and data and analytics group RELX, which offers capital growth potential and income. “Exactly what’s needed in a diversified ISA.”
I think Lloyds, Persimmon, and RELX are all worth considering today, but I’m wary about National Grid and Diageo. I’m even more wary about ChatGPT. Artificial intelligence has severe limits. I’ll stick to the human variety.
