I think it’s a great time to start investing within a Stocks and Shares ISA.
We’ve just endured a difficult few years, but economies are firming up. Businesses and stocks are doing well in many cases and, to me, the general outlook looks positive.
Of course, that could all handbrake-turn if we get another pandemic, war, energy crisis, or any other unforeseen economic shock. But this may be as good as it gets for investing.
Stocks and shares, and their underlying businesses, come with risks, for sure. However, there’s also plenty of opportunity for the careful investor who’s prepared to roll up their sleeves and do a bit of research and investigative work.
Risk-first investing
So, I’d be keen to put my £5k to work in the stock market, and I’d start by opening an ISA because of the tax advantages of owing shares within one.
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But which shares should I choose?
The first principle I’d embrace is to invest risk-first. That means thinking about the risk of loss before the potential for gain.
One way of aiming to mitigate risk is by diversifying over several investments rather than bunging all the money in just one or two stocks.
Another safety device is to never size positions above the sleep-well-at-night level.
I found my level by jumping right in. My emotions and their effect on my body told me when my stock positions had become too large. I also spent a lot of time wandering around the house during the night!
To begin with, though, I’d choose to invest some of my £5K into a low-cost index tracker fund. In my own portfolio, there are trackers following the FTSE 100 index, the FTSE 250, and the American stock market.
A decent long-term performance
After that, I’d go for an investment trust, or two, or three. One I’m holding is Finsbury Growth and Income Trust (LSE: FGT), managed by the well-known, successful manager Nick Train.
I like it for long-term focused investing because its been underperforming for the past few years. However, over 10 years the stock has risen by about 70%, and over 20 years by around 380%.
My hope is the trust will splutter back to life and deliver decent gains ahead, although there are no guarantees.
One risk arises because Train uses a strategy of concentration into just a handful of underlying shares. At the end of March 2024, the top 10 holdings made up just over 85% of the fund.
However, the companies are quality compounders – businesses with strong market niches, potentially capable of compounding their earnings for years to come.
For example, the top five are London Stock Exchange Group, RELX, Experian, Sage, and Diageo.
They’re all quality stocks, yes, but the valuations are not cheap. Nevertheless, I’m hoping profit growth will help to move the share prices higher over time and lift my Finsbury Growth and Income Trust investment.
The investments mentioned here could deliver some good diversification across many underlying stocks. However, I’d also target the shares of carefully researched individual companies – perhaps when adding more money to my Stocks and Shares ISA.
