Each year, the allowance for cash to be added to a Stocks and Shares ISA resets. At the moment, it sits at £20k. The benefit of investing via an ISA means that selling of stocks doesn’t incur capital gains tax. Dividend payments are also exempt from tax. So if I had £20k in savings right now, here’s how I’d structure my ISA for the next year.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Allocating the money carefully
It might sound odd, but I wouldn’t invest all of the £20k today. I know that often it’s taught that “time in the market beats timing the market”. This is true, but there’s also validity in not investing 100% all in one go.
For example, if I put all £20k to work today and then the Bank of England announces some surprise action on Thursday, the market could nosedive. I’d be kicking myself in this scenario. Therefore, I’d look to invest in chunks of £2k-£3k on a monthly basis for the rest of the year.
This gives me several benefits. Of course, it allows me to be less exposed to a rapid movement in the stock market. Yet it also allows me to take advantages of opportunities as they arise. For example, artificial intelligence (AI) stocks weren’t a big thing six months ago. Now they are all the rage! So keeping some powder dry for new developments further down the line is smart.
Some stocks to buy now
I’d still look to invest a chunk right now. The main area I’d target is homebuilders and banks. In my opinion, over the next few months we should be nearing the bottom of the property cycle.
I can’t perfectly predict things, but I feel that over the coming few years we should have a resurgence in the market as pressure eases on mortgage rates and the cost-of-living crisis. Therefore, I’d rather purchase stocks like Taylor Wimpey and Berkeley Group while they are in the dirt at the moment.
As for banks, we’ve already seen quarterly results showing higher profits over the past year, thanks to higher interest rates. I still feel that now is a good time to buy this sector, via names such as HSBC and NatWest Group.
With interest rates in both the UK and US still likely to rise in the short term and a lag between the banks benefiting from this impact, I’d expect results to be ahead of expectations, certainly for the rest of 2023.
Don’t forget dividend shares
The overall purpose for putting the £20k into an ISA isn’t just capital growth. To balance out the portfolio, I’d like to have a split between income stocks as well as growth stocks. In this way, when we get the market trading flat (or even moving lower) for a period of time, I can still make money from the dividend payments.
Again, I believe it makes sense to take advantage now with £2k-£3k of some generous paying options. Then from there, monitor the market for any new ideas that come along further down the line.
