The new year for the Stocks and Shares ISA began in April. This means that between now and next April, I can invest up to £20,000 into my ISA. Any funds I invest within it are free from capital gains tax when I sell the shares. This makes it a very handy tool for an investor like myself. After all, it allows me to retain more of the potential profit. With the aim to generate as high a return as possible, here are some ways I’m trying to do just that.
Making use of cash
Obviously, my Stocks and Shares ISA is just for equity investments. Yet like many people, I can have cash in the ISA that I haven’t actually invested yet. Or it could be cash from the proceeds of a recent stock sale. Either way, the easiest way to help increase my returns this year is putting that cash to good use!
For example, at the ISA deadline in early April, the FTSE 100 was trading around 6,800 points. It’s now just below 7,100. This is a return of around 4.5%. So if I was sitting on cash at the end of the recent year, I could have missed out on these gains even over just a few months. The message for me here is to put to use any idle cash that is already sitting in my ISA.
Clearly, I don’t want to drain my cash balances outside of the Stocks and Shares ISA for no reason. Having a cash buffer is needed for expenses and large purchases. But if the funds are just proceeds from selling shares, I can look to put this to work.
Reinvesting dividends
The second way I can boost my returns is via the dividends I receive. Income payments are paid into my Stocks and Shares ISA. If I’ve invested in stocks with a generous dividend yield, this amount can start to add up. What I can do here is reinvest the dividends back into the stock I own.
For example, let’s say I have £1,000 invested in a dividend stock with a yield of 5% via one annual dividend. When this £50 hits my account, I can buy more shares in the company. Now I have £1,050 invested, and will pick up £52.50 next year. This reinvestment helps to boost my return if the share price increases, or just from getting higher future income payments.
The risk is if I reinvest and then the share price falls. In this case, my loss would be larger as I own more shares, rather than simply holding onto the dividend.
Reviewing the Stocks and Shares ISA portfolio
The final idea is to review my holdings within my Stocks and Shares ISA. Over time, I’ll have likely built up a real mix of stocks in the portfolio. There could be the potential to trim some of these down and invest the proceeds into the hottest growth stocks right now. In this way, I can cut out some stagnant performers and go for what’s hot at the moment.
I can look to use one or all three ideas with my ISA this summer. The main thing is always to be thinking about what’s next and not getting complacent.
