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The Stocks and Shares ISA is one of the best ways to kickstart an investment journey. While investing comes with more risk than a normal savings account, over time, the stock market has proven that patient investors are rewarded.
Having £5,000 in savings is a major feat. Therefore, I’d want to make sure I put myself in the strongest possible position to succeed in the long run and build wealth. Here’s how I’d do it.
Opening an ISA
I’d get the ball rolling by opening an ISA. I believe it’s one of the best options available to retail investors.
Every year, each investor in the UK is granted a £20,000 use-it-or-lose-it allowance to invest in an ISA. Unlike with other trades, any profits I make through investing with my ISA are tax-free.
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.
Diversification’s key
£5,000 is a healthy amount to invest. But I wouldn’t want to put it all into one stock or industry. Instead, I’d diversify my portfolio by looking to allocate my money across five to 10 companies.
By doing so, I offset risk. It means I’m not reliant on just one company or sector. The stock market’s unpredictable, so to best set myself up for success, I want to spread my investments.
Take the pandemic as an example. During 2020, airline stocks plummeted as lockdowns saw travel come to a halt. During that time, airlines businesses were hit incredibly hard. Had I put all my money into easyJet, for example, I would have seen my investment slowly dwindle away.
Making passive income
There are other methods investors can adopt to bolster returns. One is targeting businesses that reward their shareholders with a dividend. The FTSE 100‘s home to plenty of companies that pay a high dividend yield. It’s one of the simplest ways to make passive income.
A stock to consider
One stock I like and would consider adding to my ISA is F&C Investment Trust (LSE: FCIT). An investment trust is a pooled investment and F&C has around 400 companies in its portfolio. Its top 10 holdings include Nvidia, Apple, and Microsoft.
Over the last five years, it’s risen 44.3%. That’s a much better return than the FTSE 100, which is up 12.7% across the same period.
I like the trust as, through one simple investment, I gain access to a host of quality companies. What’s more, it’s the oldest trust in the world, meaning it has survived numerous challenges, including wars and financial crashes.
While its yield of 1.5% is below the Footsie average (3.6%), it’s incredibly reliable. It has increased its payout for over 50 years in a row. That’s important as dividends are never guaranteed.
Investing always comes with risks. For F&C, one of the largest is its exposure to emerging markets, which make up over 7% of its portfolio. Its heavy weighting to tech stocks could further see it suffer if the sector wobbles.
But after weighing up the risks, I’d still buy some F&C shares today if I had the cash. And while I’d make sure to diversify my investments, it’s stocks like F&C that I’d target to buy.
