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Thinking of starting a Stocks and Shares ISA? Maybe a New Year resolution to get one going in time for April’s new tax-free allowance?
But why wait? Getting off the mark now could bring nice advantages. Firstly, there’s around four months left to use up some of the current £20,000 allowance — miss it and it’s gone.
The Autumn Budget didn’t restrict Stocks and Shares ISA rules as it did with Cash ISAs. But the limit hasn’t risen since 2017 — and soaring inflation has reduced it significantly in real terms. And who knows what a future budget might do? I reckon we should make the most of this precious resource.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Inspiration
We’d also get time to understand the rules, plan a strategy, and think about which stocks to buy. Put it off until April? Well, then thinking along the lines of ‘No rush, I’ve got a whole year to sort it out now’ can be a quick ambition killer.
We have an explanation of the rules governing ISAs and how they work, so I won’t repeat it here. Instead, I’ll examine a couple of ways to get started choosing actual investments.
We wouldn’t want to waste our Christmas holidays worrying about how we might lose money. Or suffer headaches trying to understand piles of company reports, right? We can address both at once.
Priorities
I first targeted diversification. And that’s essential for all investors, beginners and experienced alike. But most of us can’t hope to invest in a range of, say, 10 to 15 individual stocks in different sectors right away.
One great approach is to consider an index tracker, like the iShares Core FTSE 100 UCITS ETF. It invests across the whole FTSE 100, and it’s been matching the index very closely.
I prefer to be a bit more selective through investment trusts. I currently hold a couple in my ISA, with the core one being City of London Investment Trust (LSE: CTY).
Dividend Hero
It’s one of the Dividend Heroes selected by the Association of Investment Companies for raising dividends for at least 20 years in a row. City of London heads the list with 59 straight increases.
There’s a forecast 4.1% yield. It’s averaged more than that in the past, but it’s currently suffering from a rising share price. And as far as suffering goes, I don’t mind that kind of pain too much.
The diversification comes from holding a wide selection of top UK shares. HSBC Holdings, Shell, BAE Systems, Tesco… all occupy spots in the top 10 list. There’s a danger of the share price tumbling if the trust doesn’t raise its dividend one year — like next time there’s a stock market slump, for example. But for me, the diversification makes up for that.
Next steps
From investment trusts, I expanded into individual UK shares. And for those considering a similar path, there’s no rush. There are all kinds of investment trusts available that could potentially keep an investor satisfied for years while they take their time.
So yes, if I didn’t already have a Stocks and Shares ISA, I’d be treating myself to one for Christmas.
