The new ISA allowance kicks in on 6 April and is the same as the current year’s at £20k. In fairness, not many people will be able to tuck away the full amount. But the tax advantages of a Stocks and Shares ISA are worth having. Even if it means only using part of the allowance each year.
Why I’d buy UK shares now
The most attractive class of asset to me is shares. For example, many strong, well-financed and stable companies are paying shareholder dividends yielding as much as 3%, 4%, 5% and more right now. And that kind of annual return knocks spots off cash. However, dividend returns carry no guarantee.
Behind every stock is a real business. And the directors of each company have the power to trim dividends or axe them completely whenever they see fit. Indeed, shrinking and disappearing dividends can be a fact of life when we invest in shares. It’s true to say shares carry more risk than cash savings. But in return for the extra risk, we generally have the potential of higher returns. And one key tactic for achieving decent returns from shares is to aim for a good balance of risk and potential reward from the shares selected.
After all, as well as the potential for dividends to fall, they can rise as well. It’s quite common for companies to raise the shareholder dividend a little every year. And when that happens, it often signals the underlying business is trading well and improving its profits.
Improving businesses at fair prices
One of my key goals is to find shares of improving businesses. Not only can dividends increase, but share prices can rise as well to reflect the underlying advances in operations. Of course, those outcomes aren’t guaranteed. And it’s possible to lose money on an investment even if the business is improving. Sometimes that happens if a share price over-values the business when we buy.
But I’ve got my eye on several stocks right now, such as wealth management business Quilter. City analysts predict an improving earnings trend ahead and I reckon the value and quality measures stack up. But, of course, I could be wrong in my analysis and end up losing money if I invest now. Nevertheless, I’d be inclined to embrace the risks and analyse the share with a view to adding it to my Stocks and Shares ISA.
I’m also keen on iron ore pellet producer Ferrexpo. I reckon the world will aim to build back better from the coronavirus crisis and that could keep demand for resources elevated for years to come. City analysts’ forecasts for earnings are strong and the valuation looks low against them. But my investment could go horribly wrong and I could lose money if iron ore prices fall. The sector is cyclical and that brings with it many risks.