Investing within a Stocks and Shares ISA is typically a smart move. These products allow access to a wide range of investments and all gains and income are exempt from tax.
Looking for investment ideas for an ISA this year? Here are three to consider.
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.
Technology stocks
Tech stocks had a big run in 2023. However, I think they’re still worth considering in 2024. After all, industries like artificial intelligence (AI), cloud computing and robotics are still very much in their infancy.
The good news is that there’s still a lot of value to be found in the technology sector even after last year’s gains.
Take Alphabet (the owner of Google and YouTube), for example. Currently, it has a price-to-earnings (P/E) ratio of just 21. That is not a high valuation. At that multiple, I think the stock is capable of delivering attractive returns over the long term.
Those looking for broad exposure to the sector may want to check out Scottish Mortgage Investment Trust. A higher risk investment trust, it focuses on disruptive technology companies. I think it could do well as interest rates come down.
FTSE 250 shares
Another idea to consider is FTSE 250 stocks. History shows the FTSE 250 tends to outperform the FTSE All-Share index in the years following a peak in interest rates.
Given that UK interest rates have most likely peaked (most economists expect several rate cuts in 2024), I think the index is worth a closer look right now.
One way to get exposure to the FTSE 250 is to invest in a tracker fund. Another way is to invest in a selection of stocks within the index.
It’s worth pointing out that there are some big dividend yields within the FTSE 250 at the moment. So for stock pickers, there’s potential for both capital gains and income.
UK small-caps
Finally, I think UK small-cap stocks are worth considering for 2024. Right now, UK valuations across this space are very low.
According to small- and mid-cap investment manager Montanaro, valuations have returned to levels near those seen during the Global Financial Crisis (GFC) – which marked the start of a big bull market.
And like FTSE 250 stocks (mid-caps), small-caps tend to outperform when interest rates are falling. So I think the setup is very attractive as we start 2024.
One way to get exposure here is to invest in small-cap funds. These will provide broad exposure to the asset class, minimising stock-specific risk.
Another option is to pick a selection of stocks. This is a riskier approach. However, the potential rewards are greater.
Pick the right stocks, and it’s possible to obtain returns of 100%, 200%, or even more, in a year.
