Imagine you had £20,000 to invest in your first Stocks and Shares ISA in 2024. Would you have any clue what to do?
I had none when I started. I had a lot less money than that, but it was still a scary time.
And if I’d had £20k, I think my brain might have melted. Imagine I’d put it all into shares just before something like the 2020 stock market crash.
The FTSE has already recovered those losses. But what a horrible start it would have been. It could be enough to put someone off stocks and shares for life.
Rule number one
Starting now, I’d keep billionaire investor Warren Buffett’s rule number one in mind: never lose money. And I’d focus extra hard on safety in my first year.
In fact, I’d do one thing that many experts don’t recommend. The thought is that getting our money into the stock market as quickly as possible is the way to go. Comparing year by year, stocks rise in value far more often than they fall.
Lump sum, or over time?
So plonking down the cash up front is likely to do better than holding it back and spreading it out over the year. That’s the idea, and it makes sense.
But looking back to the me who started that first ISA all those years ago, that was not my main priority. It can be more important for a new investor to ease in slowly.
So I’d split my money 12 ways and buy a different stock each month. We can go for the all-up-front approach when we gain confidence, with a bit of experience behind us.
Spread the risk
The next thing I’d do is diversify. That way, I’d protect myself a bit from any specific sector hitting a bad spell.
Buying something in a different sector each month would end up with a decent bit of diversification by the time the year is out.
But for my very first year, I’d want to lower my risk up front. And there are ways to do that.
Pooled investments
One is to buy an index tracker, which spreads the cash across all the stocks in, for example, the FTSE 100. And that can be a good move.
But I prefer to buy investment trusts. Right now, I hold some City of London Investment Trust shares. It spreads my money across Shell, BAE Systems, Unilever, HSBC Holdings, Tesco… and a lot more top UK stocks. Bingo, that’s a whole load of diversification in one go.
Trusts in year one
In fact, for my first year, I’d buy only investment trusts. I might, say, go for a global one like Alliance Trust next.
And as I got close to the end of the year, I might even spice things up and buy some Scottish Mortgage Investment Trust shares. Despite the name, it goes for US growth stocks, such as Nvidia and Tesla.
Each of us has to choose our own way. But starting out today, this is how I’d do it.
