The deadline for the Stocks and Shares ISA for the 2021/22 year is tomorrow. I already have an ISA set up, in which case I could put some money in today. Yet if I didn’t have an ISA but I wanted to get started, the new ISA year would a great time to begin. Here’s how I’d invest £1,000 now in a new ISA.
Getting my numbers right
The limit per ISA year to invest is £20,000. Therefore, why am I not talking about how I’d invest £20,000 instead? This allowance is for the entire 12 months. I don’t have £20k lying around to invest in one go. Even if I did, I’m not sure investing all at once is the best strategy at the moment anyway.
So £1,000 is a better amount, in my opinion, to get started with. One good thing about the Stocks and Shares ISA is that I can invest during the year in whatever increments I want. So I’d start with £1,000, and then look to build on this money in coming months.
The benefit of investing regularly in smaller amounts is that I can average my stock purchases over time. Let’s say that whenever I invest, I allocate £100 to Apple shares. By the time next year comes around, I might have bought Apple shares a dozen times! This gives me a better chance of dealing with the volatility of tech stocks, rather than just putting everything in at one point of time.
Finding the right areas to invest in
Aside from managing my cash flow and averaging purchases, I also need to invest in the right areas. For example, I don’t think it would be wise for me to invest in ‘Covid-19 stocks’ — that is, those that did well during the pandemic. Even with case numbers being high, the vaccine benefit and lack of restrictions should allow businesses to operate normally going forward.
On the other hand, coming out of the pandemic we’ve seen inflation shoot higher. As a counteractive measure, the Bank of England is raising interest rates. A sector that this benefits is banking stocks, so I’d be keen to put some of my initial £1,000 to work in this area.
Another part of the economy that has been gaining traction recently is renewable energy stocks. Not only does this include some utility companies, but also niche areas such as lithium producers. Even though some of these firms are listed outside of the FTSE 100, I think that the rewards could be high in coming years.
Using my Stocks and Shares ISA for the long term
A final point I’d need to remember is that my £1,000 in my new ISA wouldn’t be a one-and-done thing. Hopefully, I’ll have the funds to invest each month of a similar size to build up my pot. Even when the 2022/23 Stocks and Shares ISA deadline comes, all it means is that I can start investing more in the following year.
So this £1,000 would be a great starting point to invest in my favourite right areas now, but also to leave as part of of plan to accumulate a large pot over time.