I’d use a diversified investment approach if I had £10,000 to invest in a Stocks and Shares ISA today. I’d build a portfolio with a mix of funds and individual shares as I believe this approach would offer the best of both worlds.
Indeed, I’d be able to pick out some investments I think have the chance to outperform the market over the next few years. At the same time, by owning a selection of investment funds, I may be able to protect myself from the downside if my stock picking abilities didn’t live up to expectations.
I’d devote around 20% of my portfolio to individual equities. Therefore, with a lump sum investment of £10,000 and a Stocks and Shares ISA, I’d have around £2,000 to invest in individual companies.
Stocks and Shares ISA holdings
I’d only buy companies I know and understand well. A couple of examples include Games Workshop and Watches of Switzerland. I think both of these firms have unique competitive advantages, which should help their growth in the long run.
However, these mid-cap businesses may not be suitable for all investors. As mid-cap stocks, they may not have the checks and balances in place that tend to be present at larger blue-chip enterprises.
As such, I’d also buy blue-chip stocks such as Unilever and Admiral. The consumer goods giant and insurance group are both income champions and have unique product offerings, which competitors may struggle to replicate.
That’s not to say they don’t face competition. Both have to fight off competitors all the time, but they’re investing heavily to repel these threats. If they’re overlooked, both businesses could start to struggle.
Investment funds
So those are the individual companies I’d buy for my Stocks and Shares ISA. As well as these entities, I’d also acquire a global investment trust, such as the Scottish Mortgage Investment Trust, with the balance of my £10,000. I’d buy this trust because it has a good track record of picking winning equities.
It can also invest overseas, although I’m wary of doing so, considering the risks of investing in different markets. I’d rather pay someone to invest in these markets who knows more about the environment than I do. This approach also has its drawbacks. Managers can and do make mistakes, and this will always be a risk of holding investment funds.
Finally, I’d buy some passive tracker funds for my Stocks and Shares ISA. I’d acquire a FTSE All-Share tracker fund to build exposure to the UK equity market and a global equity tracker fund excluding the UK to create exposure to the rest of the world.
Passive tracker funds are a straightforward way to build exposure to global equity markets, but the drawback is they won’t outperform. They’re only designed to track market performance. That’s why I want to include other investments in my portfolio, and it’s the reason why I plan to use a mixed approach in my Stocks and Shares ISA.