I believe using a Stocks and Shares ISA is one of the best ways to build wealth. Any assets owned within one of these wrappers are not liable for capital gains or dividend taxes. This means I can reinvest my profits without worrying about giving a portion away to the taxman.
Unfortunately, investing in a Stocks and Shares ISA alone does not guarantee success. I have to pick the right investments as well. This is a lot harder than it might seem. Even professionals regularly get it wrong when picking the market’s best investments.
Nevertheless, I have settled on a strategy that I believe can yield solid results for my portfolio. And it is the strategy I am using to invest £200 a month for the long term.
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Stocks and Shares ISA investments
There are two different prongs to my investment approach. First of all, I am looking for high-quality companies to buy for my portfolio. I am trying to stick with corporations I know well which provide a product or service I am familiar with.
A great example is the technology group Rightmove. I am very familiar with this company’s online property platform and understand how it makes money. I am also impressed by its fat profit margins and high return on invested capital. With an operating profit margin of nearly 73%, the enterprise is one of the most successful businesses on the London market.
While I would buy this stock for my portfolio, I plan to keep an eye on some of the risks it has to deal with. These include competition and rising costs which could hit profit margins. The market may decide to re-evaluate the company’s potential if profit margins fall significantly.
Diversification
As well as buying single stocks such as Rightmove, I am also buying investment funds for my Stocks and Shares ISA.
I think funds are the perfect way to invest a small monthly sum, such as £200, because this approach allows me to invest in a diverse portfolio of stocks quickly. It may not be economical to do this myself with just £200, but it is by pooling my money with other investors.
One of my favourite investment funds on the market is the LF Blue Whale Growth Fund. This fund invests in a portfolio of global growth stocks and has been on the money when it comes to picking winners over the past couple of years.
The downside of using this approach is the cost. Blue Whale charges around 0.9% per annum in fees to manage the portfolio. This could have a significant impact on my returns in the long run.
Still, even after taking these fees into account, I believe the fund, coupled with a selection of high-quality stocks, is the best approach to invest a lump sum of £200 a month in my Stocks and Shares ISA.