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ISA investors! I’d put £1,000 into FTSE 250 shares in February

Would you be interested in learning about FTSE 250 growth stocks that also have reliable dividend incomes? Then read on!

The stock market is home to many well-managed companies that have robust earnings. In general, investors regard solid dividend stocks as an important source of investment profits, especially in volatile times. 

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FTSE 250 shares

The FTSE 250 index was launched on 12 October 1992. Companies in it usually have a more domestic focus so they’re more directly affected by shorter-term developments in the economy and consumer sentiment.

I regard it as a better barometer of the UK economy than the FTSE 100, where most companies are multinational conglomerates. Since around 50% of the FTSE 250’s income is derived from the UK, domestic events, such as the result of the general election and developments around Brexit, clearly matter to its more immediate performance.

Over the past five years, the FTSE 250 index has increased from about 16,300 to 21,300. That’s an 4.5% compound annual growth rate (CAGR). In addition, average dividend yields for the FTSE 250 are around 2.8%.

Thus, £10,000 invested in the index in early February 2015, would have become about £12,400 now, even without the return from dividends.

While past performance may not exactly be repeated in the months ahead, the FTSE 250’s track record highlights its growth potential.

And regardless of our own views on Brexit, now that 31 January is behind us, I believe most British businesses will likely benefit from a decrease in uncertainty levels.

Cash ISAs

You might be wondering if you should invest in a Cash ISA in 2020.

For those readers who may not be fully familiar with various financial products, Cash ISAs are savings accounts that pay interest that is free of income tax. Many of them are instant access accounts where cash you put into UK banks or building societies is protected by the Financial Services Compensation Scheme (FSCS).

Cash ISAs can indeed provide peace of mind, and offer flexibility. Importantly too, cash may also provide ammunition for investors to buy stocks cheaper when share prices decline. Thus I believe that having a limited amount of cash in savings can be a good thing.

However, most Cash ISAs currently offer an interest rate of 1.5% at best. Therefore, I’d be willing to allocate a percentage of my savings to FTSE 250 shares, too.

If you are unsure about how much of your savings should be in cash as opposed to other asset classes, you may also benefit from discussing your own financial realities and expectations with a financial planner.

What I’m watching 

In February, there are several FTSE 250 companies I’d consider for a long-term diversified portfolio. They include:

  • Britvic, producer of branded soft drinks – dividend yield of 3.3%
  • Crest Nicholson, housebuilder – dividend yield of 7.5%
  • GVC Holdings, gambling operator – dividend yield of 3.8%
  • Inchcape, global car seller and distributor – dividend yield of 4%
  • Micro Focus International, software and technology giant – dividend yield of 8.4%
  • Group, price comparison websites – dividend yield of 3.5%
  • Paragon Banking Group, specialist mortgage lender – dividend yield of 4.1%
  • Petrofac, oilfield services firm – dividend yield of 8.5%
  • Tate & Lyle, food ingredients manufacturer and supplier – dividend yield of 3.8%

In addition to domestic companies, there are many investment trusts, such as Alliance TrustMonks Investment Trust, Murray International Trust and Templeton Emerging Markets Investment Trust, listed in the FTSE 250. And these trusts have a broad combined influence on the direction of the index.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended GVC Holdings, Micro Focus, and 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.