How I’d invest £10,000 in a Stocks and Shares ISA

Rupert Hargreaves — Sun, 06 Oct 2019 07:41:15 +0000

Stocks and Shares ISAs are a great tool to save for the future. Their most significant benefit is you don’t have to pay any tax on the profits you make inside an ISA wrapper. Indeed, you don’t even need to declare your ISA income on your tax return.

At the time of writing, investors can put away £20,000 into a Stocks and Shares ISA every year and, according to the most recent figures from HM Revenue and Customs, nearly a quarter of million savers opened a Stocks and Shares ISA during the financial year ending April. However, the average ISA subscription for the year was just £6,400, according to these numbers.

Based on these figures, I’m going to explain how I would invest £10,000 in a Stocks and Shares ISA today to achieve the best results for the long term.

Building the foundations

While £10,000 is a substantial amount of money, unfortunately it isn’t enough to build a diversified portfolio of single stocks. Therefore, I highly recommend investing this money in trusts and funds, which will allow you to invest in different asset classes around the world with relative ease and low costs.

The first investment I’m going to recommend is a low-cost bond fund. Bond funds are a great way to protect your money and achieve a rate of interest above that offered by high street banks. However, over the long term, bond returns are somewhat disappointing compared to equities.

With this in mind, I think it’s sensible to limit bond exposure to around 20% of assets. This will give your portfolio a steady base and income stream as well as reducing volatility. I would split the remaining 80%, or £8,000, across three stock funds and trusts.

Equity income

The next investment I recommend is a low-cost UK share fund tracking the FTSE All-Share. The index is made up of the 600 largest companies listed in London today, making up around 90% of the market’s value. This means it’s great way to invest in the UK market without having too much exposure to any single stock or sector.

In addition to a FTSE All-Share tracker, I think every portfolio should have some exposure to international dividend stocks. A great way to play this theme is with an investment trust. The Henderson International Income Trust is my favourite pick here. It currently supports a dividend yield of 3.2% and charges an annual fee of 0.8%.

And finally, I’d buy a growth-focused investment trust for this starter portfolio. By far the highest rated growth trust is the Scottish Mortgage Investment Trust. Over the past five years, it’s outperformed its benchmark by 42%, thanks to well-timed investments in US tech stocks.

Combined with an international dividend fund, low-risk bond fund, and well-diversified UK equity tracker fund, I think Scottish Mortage could help you achieve your long term financial objectives.

So, that’s how I’d invest £10,000 in a Stocks and Shares ISA today. Of course, if you’d like to buy single stocks, nothing’s stopping you. Indeed, if you’re willing to take on the risk, there are some growth stocks out there that have the potential to outperform the market substantially over the next few years.

The post How I’d invest £10,000 in a Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in the Henderson International Income Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Forget the Cash ISA! I’d open a Stocks and Shares ISA right now

Rupert Hargreaves — Sat, 05 Oct 2019 10:51:06 +0000

According to my research, the best Cash ISA interest rate on the market at the moment is just 1.46%. You can get a bit more if you’re willing to tie your money up for several years, but not by much. No Cash ISA on the market offers an interest rate of more than 2.1%, at the time of writing.

These minuscule interest rates are outrageous. Indeed, the current rate of inflation is 1.7%, which implies that for the most part, these Cash ISAs offer negative real interest rates (after adjusting for inflation).

Time to dump the Cash ISA

It’s for that reason that I’d avoid Cash ISAs all together and open a Stocks and Shares ISA instead. The good thing about the latter is you can invest your money wherever you want around the world. There’s also a virtually unlimited selection of assets you can choose to own. From infrastructure funds to corporate bond funds, single stocks and global equity indices, there are thousands of assets you can pick to buy.

The flexibility of Stocks and Shares ISA also means you don’t have to make do with whatever low rate of interest Cash ISA providers are offering. Instead, the world is your oyster.

Dividend stocks

Dividend stocks are a particularly attractive alternative. For example, Royal Dutch Shell is one of the largest and most trusted dividend stocks in the world. The company has maintained its payout since the end of the Second World War through thick and thin.

Today, this stock supports a dividend yield of 6.2%, three times more than even the most attractive Cash ISA on the market right now.

There are plenty of other FTSE 100 dividend stocks that offer inflation-beating yields as well and the index itself currently yields 4.5%. The great thing about buying the whole index is that you don’t have to worry about the performance of individual stocks. All you need to do is sit back and watch the money roll in.

Another plus point about Stocks and Shares ISAs is that you can invest outside the UK. So, if you’re worried about the impact a no-deal Brexit might have on the UK economy, it’s easy to diversify at the click of a button.

The Henderson International Income Trust is my favourite pick for international income. Nearly a third of the trust’s assets are currently invested in US stocks, with another third invested in European equities. The trust’s yield stands at 3.2%.

The bottom line

So, that’s why I would dump the Cash ISA today and move my money into a Stocks and Shares ISA. These tax wrappers provide much more flexibility and the potential for better profits over the long run.

Investing might seem like a lot of extra effort compared to leaving your money in cash, but as I’ve tried to show in the numbers above these investments should pay for themselves over the long term.

The post Forget the Cash ISA! I’d open a Stocks and Shares ISA right now appeared first on The Twelfth Magpie.