How I’d invest £500 per month in a Stocks and Shares ISA starting in 2021

G A Chester explains how he’d approach a Stocks and Shares ISA, if he was starting out investing this year with £500 per month.

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If I was starting investing in 2021, the first thing I’d do is open a Stocks and Shares ISA. Money held inside an ISA attracts no income or capital gains tax. Furthermore, investing in stocks and shares can produce higher returns in the long run than saving in a Cash ISA.

Compared to when I was starting out, share-dealing costs are cheap these days. Thanks to the rise of online brokers offering Stocks and Shares ISAs, investing relatively small sums is cost effective. So, how would I invest £500 per month in 2021?

Where are the customers’ yachts?

There’s an old story in the introduction to a 1940 book on the culture of Wall Street by ex-trader Fred Schwed:

“Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,

‘Look, those are the bankers’ and brokers’ yachts.’

‘Where are the customers’ yachts?’ asked the naive visitor.”

The financial services industry has long been engaged in getting us to hand over our cash by persuading us that investing is a far too complex business to undertake ourselves. I think this is hogwash, frankly.

Investing doesn’t have to be complex. As the great Warren Buffett has said: “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.”

My approach to a Stocks and Shares ISA

As you’ve probably deduced, I favour investing in individual businesses over entrusting my financial fortunes to a professional fund manager. I reckon most people, with a little business research and valuation discipline, are capable of implementing Warren Buffett’s above advice.

Investing in individual companies has a number of advantages. In particular, I value being able to build a bespoke portfolio that precisely reflects my risk/reward appetite and belief in long-term investing.

Monthly investing in a Stocks and Shares ISA

Because dealing costs are very reasonable in an online Stocks and Shares ISA, it’s possible to invest £500 per month in an individual company cost-effectively. By this, I mean that the costs represent a fairly small percentage of the £500.

Regular monthly investing would allow me to build a portfolio of 12 stocks by the end of 2021. I’d be looking for easily-understandable businesses, with strong prospects of growing their earnings over time. And I’d be looking to pay a reasonable price for the stock. Just as Warren Buffett advises!

Personally, I’d be comfortable with a portfolio of between 10 and 20 stocks. If I bought 12 stocks in 2021, I’d still have scope to add a few businesses in the coming years. But I wouldn’t want to go much above 20, because I’d feel I was getting into the realm of ‘diworsification’.

There’s how I’d invest £500 per month in a Stocks and Shares ISA starting in 2021. But, as I said earlier, one of the beauties of investing in individual stocks is that each investor can construct a portfolio that suits their risk/reward appetite. And that includes the number of stocks you’re comfortable holding.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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