With lockdown savings to invest, I’d buy the best UK shares for my ISA

There haven’t been many upsides to the pandemic but saving some cash has been one of them. Paul Summers is investing his in the best UK shares he can find.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

If there’s one silver lining to the horribly dark coronavirus cloud, it’s that some of us have been able to save money while working from home. In fact, a survey conducted by Aldermore Bank last year found that those prevented from making the daily commute saved an average £110 per week! I’ve been able to save but the question is, what should I do with this money? The answer is that I’m buying what I think are the best UK shares. Here’s my strategy.

Cash buffer

Before reading on, let me make one thing clear. I wouldn’t dream of investing a single penny of lockdown savings into the stock market if I didn’t already have a cash buffer to begin with. With the outlook on the economy murky at best, a financial safety net for dealing with life’s little emergencies is vital. I’d say the same thing even in good times. 

Clearly, exactly how much cash a person keeps in reserve will depend on their circumstances. The typical suggestion is between three and six months’ worth of outgoings. But my simpler rule of thumb is whatever allows me to sleep at night.

Buying the best UK shares

Now that my cash savings are in place, I’m throwing the remainder at the stock market. Although opinions will naturally vary on what the best UK shares are at any point in time, I’m using the following criteria.  

  • Profitable (no glitzy, loss-making US IPO stocks for me)
  • No/low debt (a robust balance sheet means a company is less likely to tap its investors for cash in a crisis).
  • A competitive advantage over rivals (such as easily-recognisable, high-quality brands)
  • Likely to grow organically in the years ahead
  • Large market share (leaders in niche markets are particularly attractive)
  • A history of generating high returns on the money management invests (a.k.a ROCE)
  • A steadily rising dividend would be nice (although size isn’t as important as consistency) 

Valuation isn’t mentioned at all. This isn’t because I think it’s irrelevant (after all, no stock is worth buying at any price). It’s more to do with my acceptance that the best UK shares rarely appear at ‘sale’ prices. When they do (such as last March), it’s not often for very long.

I’d always use an ISA

How much money I can make from investing my lockdown savings rests on a few things. These include how much I put to work and what I choose to buy. Both depend on my attitude to risk and how long I plan to stay invested. What’s right for me might not be right for someone else. 

Were I less inclined to pick stocks, then a more passive approach might be appropriate. This would take the form of buying shares in funds that track indices or major themes. An alternative would be to let a group of consistently successful fund managers make decisions on my behalf. There’s nothing wrong with combining both approaches either.

Regardless of which option I choose, I really do need to hold everything within an ISA. Investing my lockdown savings this way ensures any profits I make are wholly mine. I’ll pay no capital gains tax on my winners and no income tax on any dividends. This will make a massive difference to my returns over the next few decades.

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 considered so you should consider taking independent financial advice.

Paul Summers 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.

More on Investing Articles

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Here’s the Shell dividend forecast through to 2024

The Shell dividend is still nearly 50% below 2019 levels. Will the oil giant use record profits to rebuild its…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 FTSE 100 stocks I think Warren Buffett might love!

Warren Buffett made his fortune thanks to the success of US shares. But here are three FTSE 100 stocks I…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Down 75%, has the Deliveroo share price bottomed?

The last 12 months have been torrid for the Deliveroo share price. But does this open an opportunity to grab…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Is now FINALLY the time to buy Lloyds shares?

Lloyds shares have leapt in value as market confidence has improved. Should I buy the FTSE 100 bank before it…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

3 high-dividend FTSE 250 stocks to buy right now!

The London Stock Market is packed with top high-dividend stocks to buy. Here are a handful I'm considering buying, despite…

Read more »

Woman using laptop and working from home
Investing Articles

How I’m using my Stocks and Shares ISA to generate lifelong passive income

I’m looking to build a portfolio of assets that will pay me an income in my retirement. Here’s how I’m…

Read more »