So, you’ve resolved that 2020 is the year you’ll finally get a Stocks & Shares ISA? Or you already have one and you’re going to use it better? If you’re not already investing regularly, I hope one of those is true for you. But how would I go about starting regular investing of, say, £500 per month?
Cost
Share dealing is inexpensive these days. My broker charges a fixed £12.50 for a trade, so a purchase of £500 is perhaps cost effective, representing a 2.5% charge. But that’s too much for me, so I’d accumulate at least two months’ instalments and go for a £1,000 investment. A 1.25% hit (plus the 0.5% stamp duty on purchases) seems more palatable.
Some providers offer cheaper dealing, but perhaps restricted to purchases only on a few nominated days per month — they pool the cash from multiple investors to keep the costs down. You might prefer to do it that way, but I do like the flexibility of buying precisely when I choose.
Timing
Even though I’m very unlikely to use my full ISA allowance, I’d still make sure I’d got my April cash instalment transferred before the deadline — though a windfall to fill up my 2020/21 ISA allowance is unlikely, you never know.
You don’t need to rush to make your purchases, as long as you get the cash in. And rushing an investment decision can be very costly, so even though I’d want to get my cash invested and working reasonably promptly, I’d always put taking your time to buy the right thing as a higher priority.
Strategy
That’s the mechanics examined, but that leads to the hardest part — deciding on your strategy and which shares to buy.
I’d stress the need for some degree of diversification for safety — with your money spread across multiple sectors, a downturn in one (like banking) should do considerably less damage. But I wouldn’t go too far. Many experts recommend an ideal of 10 to 15 stocks, or even 20 or more, but the additional safety from each extra one soon starts to diminish. I’d have trouble getting much above 10 companies I want to own anyway, and I’d never buy a stock purely for diversification if I wouldn’t buy it on its own merits.
Over the course of the year, making six investments spread across different sectors would be sufficient diversification for me to sleep comfortably, so that’s how I’d go about it. And I can diversify further next year, but only if I find companies in additional sectors that I really do want — I think it’s much harder finding my tenth favourite share than my first or second.
Income
I’d go primarily for companies offering decent, well-covered, dividends, mainly in the FTSE 100 (at least for my first year), but if I really liked the look of a smaller company or a growth stock, I’d go for it. Though having a core strategy is, I think, essential, I’d never stick to one so rigidly that I’d deny myself the opportunity to buy something else if it came along.
