With the annual deadline for a Stocks and Shares ISA coming soon, a lot of people are thinking about how to make use of their ISA allowance. For some that may involve investing £20,000. But not everyone has that much spare cash to invest in shares. Here is how I would invest £300 in my Stocks and Shares ISA right now.
Step one – clarify my objectives
Just as I would with a larger sum, my starting point is figuring out what I hope to get from my £300 investment. Would my focus be on growth, income, or both?
FTSE 100 shares including British American Tobacco, Direct Line, Imperial Brands, M&G and Rio Tinto all offer yields over 7%. So even with just £300 in my Stocks and Shares ISA, I could hope for £21 of dividend income per year if I owned them.
Similarly, growth is growth. Whether a share grows 10% or 100%, I would enjoy the same growth rate no matter how much I invest in it, except for the impact of fees and charges. In fact, if I only have £300 in my ISA, any share price growth could be a useful way for me to increase my capital. That might help me grow my £300 so I have more to invest in future.
Step two – consider my risks
But growth is not certain — shares can go down as well as up. Managing my risks as an investor is important no matter how much money I am investing.
One move that could reduce my risk would be diversifying my investment. £300 is quite a small amount with which to diversify, but it is enough to let me buy two companies operating in different industries.
I would target both growth and income. So my approach would be to put £150 into a growth share and the other half of my Stocks and Shares ISA into an income pick.
Step three – choose my shares
The income share I would choose today is British American Tobacco. It yields 7%, so my £150 will hopefully earn me £10.50 in dividends each year. In fact that could rise over time. Tobacco is a very cash generative industry. British American has raised its annual dividend for over two decades.
That is not guaranteed to keep happening, though. A risk to revenues and profits is a move away from cigarettes by customers. But with the company’s extensive spend on new forms of tobacco product, it might be able to turn that risk into an opportunity.
My growth pick would be what I see as a slightly boring company – self-storage operator Safestore.
The immediate growth prospects at Safestore may not be enormous. But I see its market growth outlook as sizeable and steady. Self-storage is a growing industry and Safestore’s strong market position should help it benefit from that growth. Too much industry growth could attract new market entrants, risking profitability. But Safestore’s strong brand, existing branch network, and proven operational ability all make me confident about its growth potential.
Step four – take action in my Stocks and Shares ISA
Having made my choices, I would buy the shares in my Stocks and Shares ISA.
It can be easy to dream about investing a few hundred pounds in shares. But just picking shares to buy will not bring me any benefit unless I actually take some action and buy them.
