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How I’d invest £20k in a Stocks and Shares ISA in 2020

If I had £20,000 to invest in a Stocks and Shares ISA for 2020, I would pick a mixture of income and growth funds.

I would also stick to passive tracker funds because I think this would give me the most exposure to the markets at the lowest cost.

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Further, there would be no need to spend hours and hours trying to identify the actively managed investment funds on the market. As Neil Woodford’s investors unfortunately found out, even the ‘best’ actively managed funds can sometimes turn out to be bad investments.

As a relatively young investor with several decades to go until my retirement, growth stocks are more relevant to me at present than income investments. With this being the case, I would invest around half of my portfolio in a low-cost FTSE 250 tracker fund. 

Growth and income

According to my research, over the past two-and-a-half decades, the FTSE 250, which is predominantly made up of faster-growing mid-cap stocks, has produced an average annual return for investors in the region of 11.4%.

Most active funds would struggle to achieve the same kind of performance after deducting fees, which is why I believe that this is the best growth investment for my portfolio.

With the growth element sorted, next up is income. There are quite a few options to choose from here, including asset management powerhouse Vanguard’s FTSE UK Equity Income Index Fund, which currently supports a dividend yield of 5.5%.

There’s also the FTSE 100, which offers an excellent alternative for investors seeking blue-chip income. At the time of writing, this index currently supports a dividend yield of around 4.5%

Putting it all together 

Splitting a portfolio 50/50 between a FTSE 250 tracker fund and a FTSE 100 one might seem too easy to be true. Still, according to my figures, a portfolio made up of this mix of funds would have yielded an average annual total return for investors of 9.2% per annum over the past decade.

At this rate of return, my calculations tell me that a lump sum investment of £20,000 would grow to be worth £50,000 after a decade. 

With an additional regular monthly contribution of £100, I calculate that this initial investment would grow to be worth nearly £70,000 after a decade of saving, assuming an average annual rate of return at 9.2%. 

Contributions of £200 a month would generate a pot worth £90,000, according to my numbers. 

The bottom line

Investing might seem complex at first, but I think that the figures above clearly illustrate how easy it is to build a substantial savings pot by using just two funds.

There’s no need to be a maths whizz or spend hours analysing potential investment opportunities. All you need to do is invest your money in the FTSE 100 and FTSE 250, sit back and watch your savings grow.

As the figures in this article show, it really is as simple as that. 

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Rupert Hargreaves owns the Vanguard FTSE UK Equity Income Index Fund. 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.