£5,000 in savings? Here’s how I’d begin investing with a Stocks and Shares ISA right now

Here’s how a risk-first approach to investing in a Stocks and Shares ISA could help to deliver decent long-term gains.

| More on:
Businesswoman calculating finances in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has positions in Finsbury Growth & Income Trust Plc. The Motley Fool UK has recommended Diageo Plc, Experian Plc, Finsbury Growth & Income Trust Plc, RELX, and Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »