Opening a Stocks and Shares ISA is a great way to save and invest for the future, I feel. I already have one of these products, and I contribute regularly.
Stocks and Shares ISAs may not be suitable for every investor. Stocks can be a volatile investment, and there’s no guarantee of potential returns. Investors should only ever invest money they can afford to lose and remember past performance is no guarantee of future returns.
However, I’m comfortable with the risks of owning equities. That’s why I invest in stocks every month using a direct debit plan.
Stocks and Shares ISA investment
There are many different investments available for Stocks and Shares ISAs. The universe of assets available for purchase in one of these wappers is vast. Any investment has to be traded on what’s known as a recognised stock exchange. That essentially means any developed market stock market, although this will vary from provided to provider. Some providers do not offer access to international markets.
Investing in individual stocks and shares can be challenging. As such, my favourite way to invest in the market is with investment funds. This is the strategy I prefer, but it may not be suitable for all investors.
By setting up a monthly investment plan, I can invest in the stock market through investment funds with monthly deposits of as little as £100. Acquiring funds allows me to achieve a high level of diversification for this relatively modest monthly investment.
For example, in my Stocks and Shares ISA, I own a FTSE All-Share tracker fund. This fund holds positions in the 600 different businesses that make up the FTSE All-Share. By investing £100 every month, I can essentially get exposure to 600 of the UK’s largest listed companies.
Benefits and drawbacks
There are some drawbacks to this approach. By targeting funds rather than stocks, I may miss out on the market’s best growth equities. It also means I don’t have much say over where my money is invested. Still, the benefit of using this approach is diversification. Yes, I may miss out on the market’s best growth stocks, but my exposure to poorly performing equities will also be limited.
Other investment funds are also available. Funds that specialise in different sectors or industries, such as technology and small-cap stocks, could provide exposure to these different themes. Mixed asset funds, which can hold assets such as bonds, private equity, hedge funds and public stocks, may provide diversification. By mixing and matching these investments, investors can tailor a portfolio to their own risk tolerance. International equity funds also offer exposure to overseas markets.
In my Stocks and Shares ISA, I own a FTSE All-Share tracker fund, an S&P 500 tracker fund, and MSCI Europe ex-UK tracker fund. A regular direct debit is set up to invest in these funds every month. I believe this portfolio gives me exposure to some of the world’s largest equity markets and a high level of diversification.
It’s not an approach that will be suitable for everyone, because this is a high equity allocation, but I’m comfortable with this level of risk. As noted above, plenty of other investments are available for investors who want more diversification and less exposure to equities.