Investing £20,000 in a Stocks and Shares ISA for the first time can be a daunting process. That’s because most ISA providers today offer thousands of investments on their platforms. The sheer amount of choice can be overwhelming.
If I was investing my first £20,000 in a Stocks and Shares ISA today, I’d choose a range of funds and shares in order to build a diversified portfolio. Here’s a look at how I’d invest my money.
Investing £20,000 in a Stocks and Shares ISA
While £20,000 is a lot of money, it’s not really enough to build a well-diversified portfolio of individual shares when you consider that most investment platforms still charge trading commissions. So, I’d start by investing in a few funds (or investment trusts) for diversification. I’d go with ‘global equity’ funds in order to get exposure to world-class companies listed all around the world. These funds would be my ‘core’ holdings.
One fund I’d invest in would be Fundsmith. Run by Terry Smith (aka ‘Britain’s Warren Buffett’), it has returned nearly 18% a year since its launch in 2010, although past performance is no guarantee of future performance. This fund has a nice mix of growth stocks and dividend stocks. This tends to provide stability during market downturns.
I’d pick three or four top funds and spread half of my £20k over them. This would give my ISA a solid foundation.
Shares for my ISA
Next, I’d set about buying shares in a handful of top companies. Here, I’d look for large, dominant companies whose stocks could potentially outperform the broader stock market over time.
Four stocks I think could be good ‘starter’ stocks are Apple, Microsoft, Alphabet, and Amazon. Yes, these are all tech companies, which adds risk. However, with these four, an investor gets exposure to a vast range of growth industries including online shopping, digital payments, cloud computing, gaming, streaming, digital advertising, healthcare, remote work solutions, and more.
While all of these companies have relatively high P/E ratios, I think they offer reasonable value, given their long-term growth potential.
I also think these four companies are actually quite ‘defensive’ given the integral role they play in our lives now. This defensive nature is illustrated by the fact that while a lot of tech stocks have been crushed recently, these ones have held up well. It’s worth pointing out however, that all are listed in the US, meaning there’s FX risk as a UK investor.
I’d invest around £1,500 in each of these companies.
High-growth opportunities
Finally, I’d allocate a small amount of my £20,000 to a selection of higher-growth, higher-risk stocks. Examples of stocks I might buy include:
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ASOS, which operates an online fashion platform
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Upwork, which operates the world’s largest freelance employment platform
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Pinterest, a social media company that offers a visual discovery platform
I’d expect these kinds of stocks to be volatile. However, in the long run, they could generate strong returns.
My approach to investing £20k
I’ll stress that this approach to investing £20,000 in a Stocks and Shares ISA isn’t going to be suitable for everyone. It’s a higher-risk approach. However, it suits my own investment goals (a 20-year+ time horizon) and risk tolerance.
I’ll also stress I wouldn’t invest the whole £20,000 at once. I’d drip-feed it over 12 months, just in case stock markets crash in the near future.
