If I had £20,000 to invest in a Stocks and Shares ISA today, I’d buy both single stocks and investment funds. I’d use this diversified approach because I think it mixes the best of both worlds.
Investing in single stocks can be incredibly challenging. Even the professionals can occasionally make mistakes. Therefore, I want some diversification into other sectors and industries that I may not understand, but other investors do.
That’s why I’d buy a basket of stocks I like and understand, alongside a selection of well-managed international investment funds.
Stocks and Shares ISA buys
When it comes to single stocks, I’d buy companies such as Diageo and AstraZeneca. I feel like I know both of these organisations quite well and understand their business models.
Diageo is one of the largest alcoholic beverage producers in the world. It owns some incredibly valuable brands such as Guinness, which have a strong following among consumers.
AstraZeneca is a leading pharmaceutical company with a growing oncology business. Some of the cancer drugs it’s developed have achieved blockbuster status or annual sales of more than $1 billion. Unfortunately, cancer is only becoming more prominent, suggesting the market for treatments, such as those developed by Astra, will grow. That’s why I’d buy the stock.
However, just because these companies are successful blue-chips today doesn’t mean they’ll continue to be so. The drinks and pharmaceutical markets are both incredibly competitive. Diageo and Astra need to keep investing to stay ahead of the competition or they could be left behind.
Funds for growth
As well as the blue-chip stocks outlined above, I’d also buy a selection of investment funds to hold in my Stocks and Shares ISA portfolio. I’d focus on funds that could provide global exposure in sectors I wouldn’t necessarily feel comfortable investing in myself.
A great example is the Scottish Mortgage Investment Trust. This trust specialises in technology investing. The majority of its portfolio is invested in US and Chinese securities. It also has a selection of private investments in the portfolio. I’d never be able to access these private holdings as an individual investor, so Scottish Mortgage provides a great way to access this part of the market.
I’d also invest in the Lindsell Train Global Equity Fund in my Stocks and Shares ISA. This trust has a bit of a different model to Scottish Mortgage. It has an international portfolio but focuses on quality companies rather than just tech stocks. I think this will provide some much-needed diversification in my portfolio.
The one downside of investing in funds is that I’ll have little to no control over which holdings they buy. Some investors may not be comfortable with this, as there’ll always be a chance these funds will acquire holdings that don’t perform well, or investors may be uncomfortable owning.
I’d buy these funds alongside the stocks outlined above in my Stocks and Shares ISA. despite these drawbacks.
