As 2025 approaches, many of us are thinking about new financial goals and one great place to start is with a Stocks and Shares ISA.
ISAs are a popular investment option in the UK, allowing individuals to invest in a wide range of stocks, commodities and other assets, tax-free.
With the recent changes meaning higher capital gains tax is paid on share sales, an ISA is now more appealing than ever.
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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.
Here’s how I would go about planning my Stocks and Shares ISA for the year ahead, step by step.
Personal goals
The goals behind making an investment should shape each ISA strategy. For instance, am I investing with retirement in mind? Do I want to use this ISA to build wealth over the next 10 to 20 years? Or am I looking for mid-term goals, like buying a home?
Answering these questions will help me narrow down my choices in terms of investment style and asset allocation.
Risk tolerance
When building an investment portfolio, it’s important to consider risk tolerance. The assets allowed in an ISA can range from lower-risk options like bonds to higher-risk commodities and stocks.
Diversified equity funds or trusts provide a good middle ground.
Balancing a portfolio between high and low-risk assets can provide both growth potential and stability.
Research options
The UK offers a wide range of investment options, so taking time to research is essential.
I’d start by reviewing my existing portfolio to ensure I’m not overexposed to any single sector. Then, I’d consider opportunities in sectors that look promising for 2025.
For instance:
- Technology and Innovation: many tech companies continue to show robust growth and adaptability.
- Energy and Renewables: with the global push toward cleaner energy, companies involved in renewables and infrastructure may have long-term potential.
- Consumer Staples and Healthcare: these sectors are traditionally more stable and can provide balance in an otherwise high-risk portfolio.
A favourite of mine
One stock I believe would make an excellent foundation to consider for a first-time ISA is the UK product and services specialist Diploma (LSE: DPLM).
As a provider of technical parts for factories, labs and major projects, the company benefits from growth in several different industries. Its various businesses develop critical solutions for the healthcare, energy, aerospace and industrial sectors. This level of diversification makes it a highly defensive stock that typically enjoys growth regardless of economic conditions.
The share price reflects this, with annualised growth of 21.1% over the past five years.
There are some risks associated with Diploma’s business model.
First, it relies heavily on an efficient supply chain. Disruptions in the supply chain — whether due to geopolitical factors, material shortages or transportation issues — could hinder its ability to meet customer demand or result in higher expenses.
It also operates in competitive sectors where it competes against both large multinational distributors and specialised local players. If competitors are quicker to innovate or offer superior products, Diploma could lose market share in some areas.
Still, it has all the signs of a solid and reliable growth stock: low debt, sufficient interest coverage and a history of consistent growth. Earnings have grown at a rate of 18.8% for the past three years and are forecast to continue at a rate of 16.9% going forward.
