As daft as it may sound, I would put the Stocks and Shares ISA up there with wearing a seatbelt or taking a coat outside in winter. That is, with no gains or income taxed inside an ISA, I see it as a no-brainer.
What’s less evident, however, is the right strategy to maximise wealth in one of these marvellous accounts. Do I go with passive index ETFs or individual shares?
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Which one?
My strategy is to try and beat the market by investing in shares and investment trusts. Admittedly, this is dicier because I’m exposing myself to the individual risks that all companies have. That’s no matter how good they are.
On top of this, there’s the research to do, both before making a decision and afterwards to keep tabs on my investments. More often than not, I carry out research then decide not to invest. Of course, some might see this as a waste of time.
Nevertheless, the potential rewards for the extra effort put in by stock-pickers can be substantial. Just look at Rolls-Royce and Nvidia, which are up 1,345% and 905%, respectively, over the past five years.
Needless to say, these are market-crushing returns!
Minimising risk
To offset risk, though, I have a diversified portfolio. Not just the number of stocks (15–25, for example), but also the types of companies that I’m invested in.
For example, I hold established FTSE 100 blue-chips like HSBC and BAE Systems, and riskier growth stocks too. These include Applied Nutrition (a maker of sports nutrition and wellness products) and Raspberry Pi (low-cost computing) from the FTSE 250.
I’m also invested in Pacific Horizon Investment Trust, which gives me exposure to fast-growing Asian firms. So my ISA has geographic diversification as well.
Finally, no matter how much I like a stock, I don’t let the position get too large. If it goes up a lot, I trim it back and recycle profits into new or existing ideas.
Multiple growth trends
This is what I did with Axon Enterprise (NASDAQ:AXON) earlier this month after it rocketed almost 50% in the space of two weeks. That was a fortunately timed move because the stock has since declined nearly 20% from that high.
That said, it’s still a top position because Axon is benefiting from so many secular growth trends. For example, its Tasers are now being used for protection by multiple federal agencies, as well as inside US hospitals and UK prisons.
Meanwhile, the firm’s market-leading bodycams, which automatically upload captured footage to a cloud-based evidence management platform, are being sought out by retailers to deter shoplifters and aggressive customers. The global opportunity to protect frontline workers is very large.
Axon’s counter-drone business is also booming, with revenue surging over 300% in Q1, and the recently passed Safer Skies Act serving as an ongoing tailwind. Plus sales of AI products were up over 700% in Q1, albeit from a low base.
Any slowdown in growth is a key risk, with the stock highly valued today. Q2 earnings are due next week (5 August), so we’ll learn more then.
Assuming it forms part of a well-rounded portfolio, I think Axon is a dip-buying opportunity worth looking at seriously. It’s gone from $885 last summer to around $525 today.
Should you invest £5,000 in Axon Enterprise right now?
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Ben McPoland owns shares in Applied Nutrition, Axon Enterprise, BAE Systems, HSBC, Nvidia, Pacific Horizon Investment Trust, Raspberry Pi, and Rolls-Royce.
