A lot of investment advice makes the point that it is important to invest regularly and to start as early as possible. This is why I’d be keen to invest a sum like £200 in an ISA right now. The market is also recovering from the March crash and this situation could well continue, enabling investors to make gains in the short-term.
Investing in an ISA
When investing a relatively small amount of money I’d want it to grow over time. One of the best ways to achieve growth is to collect dividends and the reinvest them in more shares. This creates a nice cycle where you have ever more shares paying ever more income and hopefully growing in value as well.
The double engine of share price growth with dividend income can really boost an investor’s finances. But it’s very important to take the leap and get started. Doing so at a time then market is growing could give a confidence boost that’s essential for long-term investing.
So I’d use my £200 to invest in FTSE 100 shares that are still paying a dividend and likely to keep doing so. I’d also want the company to have decent growth prospects and not be in a declining industry like tobacco.
Shares for an ISA
There are two shares that come to mind and meet these criteria. One is the pharmaceutical giant GlaxoSmithKline (LSE: GSK). It has held its dividend flat, which is a very fortunate decision in retrospect. It has done this to invest in R&D which will be vital to developing new blockbuster drugs.
It’s also reorganising and selling off the consumer part of the business. This will make it a closer rival to AstraZeneca, which has done extremely well in recent years. It recently became the most valuable FTSE 100 company.
Even though the dividend has been held flat for several years, the shares still have a 4.8% dividend yield. I think investing in GlaxoSmithKline is a good way to get defensive shares. This kind of share should rise regardless of what happens to the economy.
Shares in Legal & General (LSE:LGEN) are both cheaper and high yielding than GSK’s. The company has become a force to be reckoned with in the pensions industry – a definite growth market given the greying population.
Legal & General has committed to keep paying its dividend, despite pressure from the regulator and many of its rivals, including Aviva, suspending theirs.
The group has been shown strong growth in revenue and operating profits. Even so, the shares have been hit during the market sell-off. This is because it is seen as a financial stock, and financial stocks are generally at greater risk in a falling economy.
However, I’m not sure that the economy has a big effect on Legal & General. Its shares now yield over 8% and have a price-to-earnings of only 6. This is why I think the shares are ideal to invest in right now.