I’m looking at the best ways to invest £10,000 in my Stocks and Shares ISA. With thousands of shares to choose from, where do I start?
Before looking at which shares to buy, I’d consider what it would take to grow £10,000 to £1m. It sounds quite far-fetched. And it is if I’m trying to reach this goal within just a few years.
But as a long-term investor, it’s a target that becomes much more realistic.
Building a £1m Stocks and Shares ISA
Let me explain. If I want to hit my goal in 10 years, I calculate that I’d need to earn a return of 58% per year. Without taking significant risks, that doesn’t sound likely to me.
But if I allow myself a much longer timeframe, like 35 years, I’d need to earn a more down-to-earth 14% a year.
Bear in mind that the long-term FTSE 100 return has been around 8% a year. So I’d need to try to beat that. And I’d aim to do so by picking some of the best shares I can find.
So how would I invest £10,000 to aim for a million? I’d split my investment equally across a basket of diversified shares. By that I mean that I’d pick several shares from a few different sectors.
Winning characteristics
There are some characteristics that I’d look for to hopefully find the winners of the future. Many of the features I’d go for are popular with legendary investors like Warren Buffett and Terry Smith.
For instance, I like high-quality companies as measured by return on capital employed (ROCE). In particular, I prefer to invest in companies that have a double-digit ROCE.
I also like to see profitable companies with plenty of cash flow, earnings growth and a solid balance sheet.
Buffett uses the word ‘moat’ to mean a sustainable competitive advantage. It’s something that the best companies have, in my opinion. It can come in many forms like a strong brand, a unique product, or a patent that leaves competitors standing.
I’d also aim to pick some large and some smaller companies. The larger firms could be less volatile, but the smaller ones might grow faster.
Top picks
Right now, there are many shares that tick my boxes. Here are seven that I’d happily buy today for my ISA: Astrazeneca, Howden Joinery, RELX, Diageo, Ashtead, Games Workshop and Rightmove.
On average they have a ROCE of 49%, and an operating profit margin of 34%. My basket also provides a 2.5% dividend. They each display many of the qualities noted above.
Bear in mind that much can change over a long timeframe. I’d need to continue to follow these companies over the years to ensure it still makes sense to own them. Despite current strength, new technology or competitors could dent my stocks in the future.
That said, I’m comfortable that these seven shares could help me reach my £1m target.