I try and put as much money away in my Stocks and Shares ISA as possible every year. Under current rules, savers can deposit a maximum of £20,000 in these tax-efficient wrappers every tax year. The annual allowance renews at the beginning of the tax year.
While there are plenty of other investment accounts I can use, I like the flexibility of ISAs. The tax benefits are also attractive. Any income or capital gains earned on assets held within one of these wrappers does not attract additional tax.
This is why I like to put as much money as possible into my ISA wrapper every year. And if I had a lump sum of £10,000 to invest today, I would buy a portfolio of income and growth stocks.
Stocks and Shares ISA investing
I would use three different approaches to invest such a large lump sum in my ISA wrapper.
First off, I would invest in a selection of income and growth stocks. A couple of examples of the sorts of companies I would include are AstraZeneca and IG Group.
I like both of these companies because they are leaders in their particular sectors. They are also investing heavily in growth. I think this investment should help them expand earnings in the years ahead. As earnings increase, the firms should be able to return more cash to investors.
That is the theory anyway. Of course, there is no guarantee either company will be able to continue with its growth plans. Risks such as competition and increased regulation could lead to lower profits and, as a result, dividends.
As well as these income and growth stocks, I would also buy a selection of high dividend equities for my Stocks and Shares ISA.
It is often the case that equities with high dividend yields are past their growth peak. This is not always correct, but it could be the case that a company with a high dividend yield lacks investment opportunities. Therefore, rather than investing in growth, the group returns cash to investors.
As such, these companies may not produce significant capital gains for their investors. Still, I think their dividend yields are attractive. Two stocks I would buy for this bucket are Phoneix Group, with a dividend yield of 6%, and Aviva, with a yield of 5%.
Diversification
The final bucket of investments I would buy for my Stocks and Shares ISA is investment trusts. These investment companies own baskets of stocks, which provides diversification across different sectors and industries. One of the best income trusts on the market at the moment is the City of London Trust. Shares in this trust currently offer a yield of just under 5%.
The risk of using this approach is that by outsourcing the investment process, returns will not live up to expectations. Investors may also end up paying large sums in investment fees. Nevertheless, this is an approach I am comfortable using.
I would use the above approach to invest £10,000 in a Stocks and Shares ISA to achieve both income and capital growth with this tax-efficient product.