Individual Savings Accounts (ISAs) are experiencing a demand boom at the moment. In 2023/2024, the number of Stocks and Shares ISAs that Britons subscribed to rose 7% year on year to 4.09m. As a consequence, a total of £31.07bn was subscribed to these tax-efficient products, an 11% increase.
Buying UK and overseas shares involves more risk than cash savings. Markets are notoriously volatile, and the possibility of losing money is something Cash ISA savers don’t face.
But the possibility of super-sized returns makes the Stocks and Shares ISA a great investment product to consider. I think an average annual return of 8%-10% is a realistic target, based on historical data, with investors’ profits boosted by protections from capital gains and dividend taxes.
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.
But what could a starter ISA look like? Diversification is key to managing risk and capturing lucrative investment opportunities, for both new and experienced investors. Thankfully, the large number of exchange-traded funds (ETFs) and investment trusts available today makes creating a diversified portfolio quick and cost-effective.
A three-stock starter ISA
For example, direct investment in just these three shares provides exposure to a total 1,324 companies:
- Nvidia (NASDAQ:NVDA)
- iShares Core MSCI World UCITS ETF
- Octopus Renewables Infrastructure Trust
Nvidia’s one of the hottest US growth shares out there. And while competition from China’s mounting, it has significant opportunities to grow profits as our lives become increasingly digitalised. Its graphic processing units (GPUs) are used across a variety of sectors like gaming, automobiles and cloud computing.
But it’s in the field of artificial intelligence (AI) where the company has incredible long-term earnings potential. The vast computational demands of AI models can only be serviced by high-power chips, and Nvidia’s the clear market leader here. As a result, revenues at its Data Centre division were a mammoth $41.1bn in then second quarter and up a staggering 56% year on year.
Nvidia’s share price has exploded almost 1,350% in just five years. I believe market growth and product innovation will continue driving it skywards.
Rounding off the portfolio
Admittedly, Nvidia shares are expensive and have a slight layer of complication given that they’re US-listed. They also leave investors heavily exposed to a single sector. But also holding the funds and trusts I’ve mentioned significantly reduces this problem.
The iShares global shares ETF can also be subject to share market volatility. But its holdings are spread across countries and sectors (like financial services, consumer goods, healthcare and information technology), which in turn reduces concentration risk.
Utilities like Octopus Renewables Infrastructure Trust can also provide a portfolio with a defensive anchor. On top of this, the above-average dividends this one typically pays can help investors generate a solid return even when share prices are falling.
Despite interest rate risks, this can make it another great share to consider for a Stocks and Shares ISA. Taken together, these three US and UK stocks provide a well-rounded portfolio that balances risk alongside growth and income potential.
