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How I’d invest £10k in a Stocks and Shares ISA today

The investment world can be a daunting place. There are thousands of stocks and funds out there on the market to choose from, each of which offers something different.

Choosing the right investment could make you a fortune, but choosing the wrong one could cost you even more.

With that being the case, today I’m going to explain how I would invest £10,000 in a Stocks and Shares ISA right now, to achieve high single-digit per annum growth through income and capital gains for the foreseeable future.

Fund choices

£10,000 isn’t really enough to build a diversified portfolio of single shares. You would need at least 20 stocks in a portfolio for it to be well-diversified, which means investing just £500 in each name.

I would recommend buying investment funds instead. Funds give you access to a well-diversified investment portfolio at the click of a button, and you don’t need to worry about researching the underlying investments. The fund managers do all the hard work for you.

The best investments for your portfolio will depend on your risk tolerance and where you are in your investment journey. For this article, I’m going to assume the investor has a multi-decade time horizon and is not afraid to invest in equities.

For the base of the portfolio, I am going to recommend a large-cap blue-chip income fund. In this case, I think the Vanguard FTSE UK Equity Income Index Fund fits the bill perfectly.

This fund tracks the performance of its underlying index, the FTSE UK Equity Income Index, and owns 128 stocks with a median market capitalisation of £38.3bn. It currently supports a dividend yield of 5.4%.

Alongside this blue-chip equity income fund, I think a small- or mid-cap growth fund would work well. Rather than trying to shift through the hundreds of active investment funds out there, I believe a low-cost FTSE 250 tracker fund would fit the bill perfectly.

The FTSE 250 index is made up of the bottom 250 companies of the FTSE 350, which is made up of the 350 largest companies listed on the London market. These businesses are predominantly domestic, small- and mid-cap companies. By buying the index as a whole, you don’t need to worry about the performance of the investment manager.

Annual returns

Over the past decade, these two funds have produced an average annual return for investors of between 10% and 9%, and I see no reason why this performance cannot be repeated over the next decade.

If you’re not comfortable holding only two funds in a portfolio, then you can also add other investments with a different focus, but I believe that these two funds give the best exposure to some of the largest companies in the UK.

What’s more, they also provide diversification across 378 different companies. It would be virtually impossible to build the same kind of diversification with single stocks in a portfolio worth just £10,000.

So that’s how I would invest £10,000 in a Stocks and Shares ISA today. The approach is simple, but I reckon this combination of funds could stand the test of time.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.