Investing in Stocks and Shares ISAs can be a powerful way to build wealth and achieve millionaire status over time. And one of the most important tools in an investor’s arsenal is diversification. Diversification helps mitigate risk by spreading investments across a range of asset classes, sectors, and geographies. Rather than relying on the performance of a single company or industry, a well-diversified portfolio balances exposure so that losses in one area can potentially be offset by gains in another.
Investment trusts
Investment trusts offer built-in diversification by holding a wide range of global companies across different sectors and regions. They also trade like regular shares making them easily accessible. While there are many investment trusts to choose from, two of my favourites are the popular Scottish Mortgage Investment Trust (LSE:SMT) and The Monks Investment Trust (LSE:MNKS). Both are managed by Baillie Gifford and have a strong track record of delivering for investors. They both also offer global exposure.
What’s so great about Scottish Mortgage?
Scottish Mortgage is well known for identifying exceptional growth companies across public and private markets. It offers long-term investors exposure to innovative firms like Tesla, SpaceX, and Nvidia, and its unconstrained approach enables investments in emerging sectors and unlisted companies, making it a compelling choice for growth-oriented portfolios.
However, the portfolio carries notable risks. Its heavy reliance on volatile tech stocks makes it susceptible to market downturns and cyclical pressures, particularly during economic slowdowns or geopolitical instability.
What’s more, the trust employs gearing (borrowing to invest), which amplifies returns but also increases losses when investments underperform. And this explains why the trust is down 30% since its year high in early February.
Furthermore, its significant exposure to private companies introduces liquidity risks, as these assets can be difficult to sell during adverse market conditions.
Nonetheless, the trust’s long-term performance remains strong with the share price increasing threefold over the past decade. It might be volatile, but personally I’m willing to endure the blips. That’s why I’m continuing to top up.
Monks Investment Trust lags slightly behind
The Monks Investment Trust lags its larger peers slightly in terms of shareholder returns. The share price has doubled in value over the past decade, but like Scottish Mortgage, has fallen considerably over the past month.
The Monks Investment Trust invests in innovative companies across sectors and regions, including tech, healthcare, and emerging markets. Its strategy balances risk by categorising investments into Stalwart, Rapid, Cyclical, and Latent growth opportunities.
It also carries risks. Its exposure to overseas securities makes it vulnerable to currency fluctuations. Likewise, the use of gearing amplifies potential returns but increases losses during downturns.
However, I’m actually quite bullish on its top five holdings, Meta, Microsoft, Nvidia, Amazon, and TSMC. These are some of the stocks experiencing a lot of pain right now, but I still believe in their long-term potential.
I’ve recently added this trust to my daughter’s SIPP. I may add it to my own portfolio soon.
The long game
Past performance is not indicative of future prospects. However, I do believe these two trusts offer a diversified offering to propel a Stocks and Shares ISA. And if Scottish Mortgage continues to triple in value every decade, well, it’s not hard to see how millionaire status could be reached.
