A Stocks and Shares ISA is a great tool I can use as an investor. The general premise of the ISA is that I can build a pot over time that receives favorable tax treatment.
As long as I buy and sell stocks within the ISA, the proceeds are exempt from capital gains tax. This means I can accumulate more profit over time without losing a chunk of it to HMRC. I’ve had an ISA for many years, but if I was just starting out, here’s what I’d do to begin with.
Thinking about amounts and timing
The first thing I’d consider once my Stocks and Shares ISA was open and ready to go is how much I can afford to invest. Technically, there’s a limit of £20,000 per year I can invest. But it doesn’t matter at what point I do this. I can invest in one lump sum, or every week. I also shouldn’t feel the pressure to invest the full amount as if it’s some kind of target.Â
In my first few years of having my ISA, I got nowhere near the limit! So if I was starting again, I’d look and see how much I can put away into the ISA. My preference would be to allocate money there each month, instead of a lump sum. This way it puts less pressure on my cash flow.
When looking at the stock market, putting away some cash each month is beneficial. The FTSE 100 and other markets are volatile, and so are impossible to time perfectly. By buying stocks each month, it reduces the pressure on me to decide when is a good time. Obviously, I can try and buy on specific dips during a month, but I don’t need to get overly concerned. Over the course of the year, my average buying price should smooth out, which is the aim here.
Picking where to invest for my Stocks and Shares ISA
After deciding how much I can afford to invest in my ISA, I then need to decide where I should invest it. To begin with, I’d prefer to stick to large-cap FTSE 100 stocks. Although there are can be some great buys with smaller companies, liquidity can be an issue. This means the difference between the rate at which I can buy versus the rate I can sell at can be very large. In the beginning, I don’t really want to add in this complication, so would prefer to go for highly traded shares.
I’d start at a top level, thinking about sectors I like. Personally, these include healthcare, financial services and renewable energy. From there, I’d see which FTSE 100 companies fit in these categories. I’d pick two or three from each area and build up my stake in each of them with my Stocks and Shares ISA over time.
There are many things to consider when starting an ISA, but the above points cover the big things to get me well on my way.