There’s not long to go until we have a whole new ISA allowance. That means we can invest up to £20,000 more come April, and not pay any tax when we eventually cash it in. For me, it brings the same old questions again. What types of shares are best for my Stocks and Shares ISA, and how should I invest differently this year?
I generally prefer to buy FTSE 100 shares that pay dividends these days, and that might seem like a sensible ISA strategy. After all, dividend shares are less risky, aren’t they? And it should be easier for me to stash them away and ignore them for years, just taking the annual cash, shouldn’t it?
Well, I own shares in Lloyds Banking Group. And the Lloyds share price is down around 35% over the past five years. Oh, and my nice safe dividends have been halted. Sure, the dividend has been paused at the behest of the regulator, and I suspect it’s likely to be reinstated relatively quickly. And I might buy some more for my 2021 Stocks and Shares ISA. But it does shows that dividend shares aren’t necessarily safer than growth shares.
Growth vs income
Speaking of growth shares, I also have a holding in Boohoo, which doesn’t pay any dividends. But the Boohoo share price has soared eight-fold over the same five years. Unfortunately I didn’t buy them that long ago. But, so far at least, my ISA money would have done a lot better in the growth stock that is Boohoo than in income-paying Lloyds shares.
People might make assumptions about the relative risks of various types of shares. But I prefer to ignore such generalisations and focus on the individual companies. So if I’m convinced that a company is a great one and its shares are good value, I’ll rate it a buy. If not, I won’t.
Some will argue that putting Stocks and Shares ISA money into dividend-paying shares is a good choice for retired investors. It can hopefully provide a steady income — at least, steadier than growth shares paying no dividends at all. But then, I have a friend who retired with a portfolio of growth shares. They pay only modest dividends now, and for years didn’t pay any at all. He gets his income by selling some shares at regular intervals.
Stocks and Shares ISA strategy
So for me, if the overall value of my Stocks and Shares ISA is increasing over the long term, and I can take regular income from it (via selling shares or collecting dividends), I’ll be happy.
But what about 2021 specifically? The Covid-19 pandemic has changed the investing landscape dramatically, hasn’t it? Well, it hasn’t changed my long-term strategy in the slightest. I’m still guided by Warren Buffett’s exhortation to look for great companies at good prices.
That might get me some better bargains while share prices are depressed. But I’ll be investing in exactly the same kind of companies that I was seeking anyway. The priority for me is to use as much of my annual Stocks and Shares ISA allowance as I can, without worrying about short-term ups and downs.