My Stocks and Shares ISA is a great tool that I can use to house my investments. It allows me to put up to £20,000 a year in the ISA, without having to pay capital gains tax when I come to sell anything. Therefore, one key objective of mine is to find top growth stocks that I can put into my ISA now. That way, in years to come my profit should be able to accumulate, without having to lose any to the tax man when selling!
Picking the right kind of growth stocks
The main point I need to consider first is where can I find top growth stocks. This might seem an obvious question, but growth stocks is a broad term. Some companies have seen large revenue and profit growth over the pandemic. Yet unless I believe that we will be living under restrictive conditions for the next decade, these aren’t the type of growth stocks that I want for my ISA. This is because the growth trajectory into the long term doesn’t look appealing.
Rather, I want to look for the type of growth stocks that are in sectors that have the potential to post gains for many years to come. This involves seeing potential in the specific sector.
For example, green/clean energy is an area that I continue to bang the drum about. We’re seeing the pace of investment pick up in this area from governments around the world. Further, companies are setting goals to reduce emissions or switch to renewable energy sources for operations.
I think that this sector contains many top growth stocks that have the ability to move substantially higher over the next decade. Not only could the stocks see large inflows from ethical investors, but fundamentally the businesses should grow from increased demand from customers. Personally, I can see this being the case across the spectrum, from energy suppliers down to wind or solar parts manufacturers.
Being flexible along the way
I do need to be selective in the growth stocks that I choose. I shouldn’t be afraid to sell stocks if I feel the outlook has fundamentally changed. This is because I don’t want to waste the opportunity cost of putting the money into other companies that have good performance.
For example, let’s say I’m positive about growth in China, with its rising and prosperous middle class. I could invest in stocks that have a lot of trading ties with the country. A year down the line, I might find that actually China is slowing down. At that point, I’d have a think about selling some of my stocks in the area and putting the money into other top growth stocks from a different area of the economy.
Clearly, I don’t want to book unnecessary losses in my ISA. But the point is that from a long-term perspective, I’d rather move into an area that’s working at an earlier point in time to allow the maximum opportunity to see share price growth.
Overall, by picking the right growth stocks and not being afraid to accept changes over time, I can get the most out of my ISA returns.
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Jonathansmith1 and The Motley Fool UK have no position in any share 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.