Times are uncertain and most FTSE 100 shares are volatile. So it helps to remind ourselves why we are investing in the stock market. Most of us aim to build a safe nest egg, especially for retirement, as well as for life emergencies. As many of our readers know, Stocks and Shares ISAs offer tax-efficient benefits. Therefore, despite the short-term choppiness in the market, I’d use my current ISA allowance to buy into shares that may be appropriate for long-term portfolios.
Safety in utilities
March has been a month to forget for many investors. However, before you go all-cash in your ISA, I believe there’s one option worth considering, utility stocks. National Grid (LSE: NG) is a multinational electricity and gas utility company headquartered in London.
It’s the owner and operator of much of the UK’s gas and electricity infrastructure. The group also serves consumers in the northeastern US. As millions of people in both countries are confined to their homes and are also working remotely, there is likely to be increased demand for domestic electricity and gas, despite a drop in offices and shops.
That would potentially support share prices of most utility stocks, such as NG, making them robust choices for buying in an ISA.
In addition, on 19 March the Bank of England (BoE) cut the base interest rate to an all-time low of 0.1%. Many utilities firms tend to carry high levels of debt on their balance sheets. Therefore, lower rates may mean a boost to the bottom lines of these businesses, including National Grid.
Year-to-date NG stock is down only about 4.1%. The current price of 937p means a dividend yield of 5.1.%. The shares are expected to go ex-dividend in late May.
Bet on defence spending
I regard defence giant BAE Systems (LSE: BA) as another possible addition to an ISA. As one of the largest global defence contractors, the group provides a wide range of products and services for land, air, and naval forces.
Its largest operations are in the UK and US. And the business translates into a virtually guaranteed income stream from governments worldwide.
In late February, the group announced 2019 results that showed its solid financial position. And management regarded 2019 as the year of “significant progress” for BAE. It also has a strong backlog of orders worth £45.4bn.
Earlier in 2020, the group announced two strategic company purchases in the US that are likely to provide extra capabilities in defence electronics and weapon systems. Many analysts welcomed these acquisitions.
So far in 2020, BA stock is down about 7.3%. Yet over the past 12 months, it is still up over 15%. Its share price of 516p supports a current dividend yield of 4.3%. And the stock is expected to go ex-dividend in mid-April.
ISA deadline is here
Markets are still reacting negatively to the global pandemic news. But keeping calm now will pay off in the long term.
Although several industries are clearly having a difficult time, some others, such as utilities and defence, are likely to hold up better.
If you are unsure about selecting individual companies due to increased uncertainty an industry may face, then you could buy into a FTSE 100 tracker fund.
Finally a quick reminder that our tax year runs from 6 April to 5 April. So the deadline for individuals to contribute to the previous year’s ISA is April 5.
