In a few days’ time, investors will be able to put money into so-called ‘Nisas’ — new ISAs. The annual tax-free ISA limit will be increased from £11,800 to £15,000 and, more importantly, savers will have the flexibility to put money into cash accounts or stocks, and to switch between the two.
Coupled with rock-bottom interest rates and the stock market’s continuing bull run, it’s likely more money will be invested in shares. So which are the best stocks to put in your Nisa?
Double your money
There are plenty of good candidates. Top of the list for me would be National Grid (LSE: NG). It is paying a dividend yield of 5%, far better than you can get in a savings account and among the best payers in the FTSE 100.
The way compounding works, just reinvesting those dividends makes your money grow. After 10 years, your initial investment would have increased by 50%. After 15 years, it would have doubled. Add to that the very real possibility of the shares increasing in value, and you can see how investing in high-yield shares like National Grid can grow your wealth. But it’s vitally important to choose shares that are likely to be able to maintain or increase the payout over the long term.
National Grid is in a strong position because its UK earnings — two thirds of the total — are determined by agreements with the industry regulator Ofgem. The current agreement runs until 2021, well past the life of the next parliament. And with the need to replace the UK’s creaking infrastructure the regulatory asset base, on which earnings are calculated, should grow and in turn drive up the share price.
Safety first
My second pick is Shell (LSE: RDSB) (NYSE: RDS-B.US). The largest company in the FTSE 100, Shell’s size and longevity support its safety as an investment. A new CEO is shedding non-core assets and cutting capital expenditure to boost shareholder returns. Shell’s shares yield 4.4%, a little more than its free cash flow, but the new strategy should keep the payout safe.
Thirdly I’d go for HSBC (LSE: HSBA) (NYSE: HSBC.US). Banks can be more volatile investments, but HSBC’s position as one of the world’s largest banks makes it special. Its earnings will rocket if — and when — the developed economies finally reach escape velocity, whilst its dominant position in Asia is a play on China’s continuing growth. Meanwhile, its shares trade on a cheap multiple of 10.7 times earnings, with a yield of 5.3%.
Diversification
When you build a portfolio, it’s vital not to put all your eggs in one basket. Diversification is the best way of minimising risk, whilst maximising growth. It’s always good to have a solid core of quality, cornerstone shares.