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With an eye toward long-term wealth, I think holding shares in blue-chip companies makes sense to me. I use my Stocks and Equities ISA to benefit from both the growth and income potential of some of the nation’s leading companies.
If I had an extra £20,000 to invest in my ISA right now, this is how I would do it.
Establish an investment strategy
Each investor has their own objectives, risk tolerance and investment style.
So my first step would be to decide what I wanted to try and achieve. I am a long term investor. But what would my time frame be here? Investing based on an annual income target three to five years from now might lead me to a different choice rather than being happy to put £20,000 into a stocks and shares ISA today and leave it there for decades.
growth or income
Next, I would consider what my balance between growth and revenue share should be. I like to compound dividends and having a Stocks and Shares ISA with £20,000 of capital might be a good platform for that.
So I’d probably skew my ISA toward income stocks, with maybe a quarter or fifth of my allocation more focused on growth.
Income shares I have recently purchased include vodafone Y dunelm. On the growth front, I am currently considering stocks that include Alphabetthat if I had an extra £20,000 to invest in my ISA today, it would certainly be on my shopping list.
Apply risk management principles
There are two basic elements to how I might use a Stocks and Shares ISA as part of my approach to building wealth.
One is to invest in stocks that give me a positive return on my investment, either through share price growth, dividends, or a combination of both. The other crucial element is to avoid losing money on my investments.
As billionaire investor Warren Buffett says, “Rule number one: never lose money. Rule number two: never forget rule number one”. Easier said than done, but I can at least try to achieve that result by applying some basic but important risk management principles.
For example, like Buffett, I would diversify my investments into a variety of companies. £20,000 is enough money to let me do this. Also like Buffett, I would stick with companies that I felt I understood and could evaluate.
Find companies to buy
In the long run, as Buffett has repeatedly shown, building wealth through investing is not just about buying big businesses. It is also based on buying at an attractive price.
That can take time, so I would be patient. I would not be in a rush to put my ISA money to work. Instead, I would spend time building a list of companies that I think have great characteristics, such as a competitive advantage in an industry with strong customer demand. I would then look for opportunities to add those companies to my Stocks and Shares ISA at the correct price.
