Starting out in ISA investing is never easy. It can be difficult to judge where is best to invest – especially with stock markets having risen significantly in recent years. However, the good news is that even in the midst of a bull market, there are still opportunities to generate high returns in the long run. With that in mind, here’s how I would invest my first £1,000 if I were a new ISA investor.
Risk reduction
Perhaps the most important part of being a new investor is considering the risks that come with buying shares. While this may not be the most exciting of topics at a time when most new investors are focused on the returns they could generate, the reality is that it’s easy to lose money on the stock market.
For example, this could be from a general downturn in share prices. This cannot be ruled out at the present time since Brexit is now a year away and the world economy is having to absorb increasing inflation prospects. Therefore, the volatility that has been evident in recent months may continue during the course of the year. This means that considering the potential for loss and guarding against it could be a sound move for new investors.
One means of diversifying with a relatively limited amount of capital is to buy a tracker fund. Another could be to buy shares which themselves have exposure to a variety of different markets, products and customers. Either way, considering risk before return may be a sound methodology when it comes to ISA investing.
Impartiality
At the present time, there’s significant debate regarding the future prospects for the UK economy. In some cases, an individual’s stance on Brexit can influence their viewpoint of the potential fate of UK-focused stocks. For example, an individual who is pro-Brexit may be drawn to buying stocks which have exposure to the UK because they see a bright future outside of the EU. Similarly, a pro-Leave investor may sway towards international stocks because of their reduced exposure to the possible impacts of Brexit.
However, the key to ISA investment success could prove to be impartiality. In other words, focus on the facts and figures rather than gut instinct or political persuasion. This means that in some cases the low valuations on offer for UK-focused companies could mean they offer a favourable risk/reward ratio. Likewise, some international stocks may still have upside potential despite having reached high valuations due to the impact of a weaker pound.
As such, finding the best opportunities — whatever a company’s sector or geography — could be the right move for the long term. It could help a new investor to take advantage of the opportunities that remain available in the stock market, and may lead to impressive returns within a tax-efficient wrapper in the long run.
