Investing in a Stocks and Shares ISA is a good means of boosting your retirement prospects. It offers tax-efficient investing opportunities, while its cost and simplicity make it highly accessible to a wide range of people.
Clearly, deciding what to buy within your Stocks and Shares ISA can be a challenging task. Here’s where I’d invest £5,000, or any other sum, today to build a long-term portfolio that can provide a passive income in retirement.
Domestic stocks
While the general election provided a brief boost for many companies that rely on the UK for their income, a number of UK-focused stocks still trade on low valuations. This may be because the Brexit process is not yet over, with the UK and the EU now set to embark on a period of negotiations prior to the end of the transition period at the end of 2020.
During this time, a number of UK shares could continue to offer good value for money for long-term investors. Certainly, their valuations could decline yet further should negotiations between the UK and the EU appear to be going less favourably than investors had hoped for.
However, in the long run the low ratings and wide margins of safety of domestically-focused stocks could lead to high returns for their investors. As such, buying UK-focused shares could be a good idea at the present time.
Unpopular sectors
Some sectors are unpopular among investors at the present time. For example, banking and retail contain a number of companies that currently trade on low valuations and which offer high dividend yields.
Certainly, banking and retail are experiencing changing operating environments that pose a threat to incumbents. However, in many cases those risks have been factored in to the valuations of companies operating within the industries. This could enable investors to make high levels of capital growth in the coming years, as well as generous income returns in the short run.
In recent weeks, global consumer goods companies that are focused on emerging markets such as China have also become unpopular among investors. Disappointing sales performances from some businesses that operate in such regions has been a catalyst, while the US/China trade war has also negatively impacted on investor sentiment.
With wage growth in major emerging economies such as India and China forecast to rise rapidly in the coming years, now could be the right time to buy companies that have strong positions in such countries.
Long-term approach
Buying undervalued shares may not feel like a natural step for any investor to take. Cheap stocks could decline yet further in the short run, with investor sentiment having the potential to weaken due to Brexit and challenges faced by specific sectors.
However, taking a long-term approach and buying such companies today could improve your retirement prospects and allow you to generate a passive income from your Stocks and Shares ISA.