image source: Getty Images
A stocks and shares ISA gives investors like me the opportunity to invest in the stock market without paying dividend tax or capital gains tax. I think it’s a great opportunity.
With £20,000 to invest, a good strategy is to split it into smaller amounts and invest steadily throughout the year. This has some disadvantages, but I think there are also great advantages.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Market timing
Regular investing involves purchasing a certain number of stocks and shares at a certain time. In the case of a stocks and Shares ISA allowance, that could be £1,666 a month or £5,000 every quarter.
This approach has a couple of advantages. The first is that it avoids the difficulties of trying to determine where stock prices will go next.
Someone who invests on a set schedule doesn’t need to worry about whether stock prices will rise or fall three months from now. Your plan is to purchase the allocated amount regardless.
As long as the stock market rises over time (which it usually does), someone who invests gradually will do well. And they will do so without having to predict stock prices in the short term.
Buying low
The other big advantage of regular investing is that it automatically means buying more when prices are low. Carry Lloyds Banking Group as an example.
Over the past five years, Lloyds’ share price has gone up and down. But someone who invested every quarter would have bought most of their investment when stocks were cheap.
At the beginning of the year, for example, Lloyds’ share price was around 47p. So someone investing £5,000 in Lloyds in January would have bought 10,638 shares.
However, the shares have since fallen to around 42p, meaning £5,000 buys 11,904 shares. By investing the same amount regularly, someone would buy more shares when the price is lower.
Buy expensive?
However, there is a possible downside to consider with regular investing. It seems to involve committing to buying shares of companies even when they are overvalued.
Right now, NVIDIA The shares seem quite overvalued to me. But if you had a policy of buying stocks every month, you would have no choice but to invest at current prices.
However, I think there is a way around this. Rather than committing to buying a specific stock, I would look to invest a certain amount regularly in what I believe is the best opportunity at the time.
Sometimes the best stock to buy can be Appleother times it can be Unilever. One of the nice things about investing this way is that, over time, you would likely build a diversified portfolio.
Aiming for a million
The number of ISA millionaires in the UK seems to continue to increase every year. Joining their ranks will take time, perseverance, and probably some luck.
However, I believe that investing regularly gives people like me the best opportunity to build wealth through the stock market. Whether or not I hit the £1,000,000 mark, it’s probably the best strategy for me.
