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Here’s how I’d invest £500 a month in a Stocks and Shares ISA in 2020

Stocks and Shares ISAs are great products that allow almost anyone to invest without handing over their gains to HMRC.

Therefore, if you’ve not opened one of these tax-efficient wrappers yet, now could be the time to take advantage of this unique opportunity.

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However, deciding where to invest your hard-earned money can be a challenge, especially due to the range of assets that can be purchased in an ISA. Therefore, it might be best to keep things simple and set up a regular investment in the FTSE 250.

Keep things simple

There are over 2,000 public listed companies in the UK as well as thousands of investment funds. Picking the right stocks and funds can be a challenging and time-consuming process. What’s more, there’s no guarantee that you will select the right investments.

As such, buying a low-cost FTSE 250 tracker fund could be a great alternative.

While the outlook for the FTSE 250 might not be certain in the short term, over the long term, the index has produced some highly attractive returns. Since its inception three decades ago, the FTSE 250 has produced an average annual return for investors of 12%.

This suggests that the index can produce double-digit returns over the long term. Unlike single stocks, the FTSE 250 offers of diversification across multiple sectors, industries and countries. This diversification reduces the risk that you will make an investment mistake, which could hold back returns over the long run.

However, as mentioned above, it is difficult to predict the direction of the index in the immediate future. Therefore, regular investing is a great way to capitalise on the cyclical nature of the stock market.

Regular investing

Regular investments help to smooth out market volatility, and by setting a specific monthly contribution, you can take advantage of falling stock markets, buying more when the market gets cheaper, and less when prices appear overvalued.

Almost every online broker offers a monthly investment plan, starting from as little as £10 a month. These plans allow you to set up a direct debit and monthly investment instruction, with no further effort required on your part.

A regular investment in an index tracker fund could be a fantastic way to capitalise on the FTSE 250’s long-term investment performance cost-effectively, without demanding too much of your time.

Single stocks

Some FTSE 250 shares also appear to offer value at current levels. Still, as mentioned above, the process of picking shares can be time-consuming and costly if you get it wrong. It might be better to concentrate your efforts on the index as a whole to begin with, and transition towards single stocks over time.

Starting your Stocks and Shares ISA journey with a tracker fund and regular monthly investment of £500 could be a great way to kick-start your savings and grow your ISA at a fast pace for years ahead.

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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.