Here’s how I’d invest £500 per month in an ISA starting right now

Looking to invest £500 per month in the stock market? Now could be a great time to start, and here’s how one Fool would go about it.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Congratulations, if you’ve decided to invest £500 per month in the stock market. Or, indeed, any other sum. Now looks a great time to be starting. Markets are at depressed levels, due to the economic impact of Covid-19. And history tells us buying stocks during challenging times like this can lead to stellar long-term returns.

You’ll pay no tax on those returns, if you invest using a Stocks and Shares ISA. You can put up to £20,000 in such an ISA this financial year. So how would I invest £500 per month, say, starting right now?

Getting started

Opening a Stocks and Shares ISA is quick and easy. Also, share-dealing costs are much lower these days than they once were. This makes buying £500 of shares in a company reasonably cost effective.

I personally favour choosing individual businesses to invest in, as opposed to handing my money over to a fund manager. For one thing, I’m interested in businesses, accounting, and valuations. For another, I reckon no one cares about my money as much as me!

So, in getting started, I’d open a Stocks and Shares ISA, and look to buy shares in individual companies.

How I’d invest £500 per month

The world’s greatest investor, Warren Buffett, said in his 1993 letter to shareholders: “If you can identify six wonderful businesses, that is all of the diversification you need … Very few people have gotten rich on their seventh-best idea.”

Now, I wouldn’t be comfortable aiming for a portfolio with as few as six stocks. On the other hand, I think my levels of analysis, confidence and conviction would suffer, if I went much above 20. As such, over the course of the first year, making 12 investments of £500 in different companies would suit me well.

In the second year, I might add one or two new holdings. But only if they were businesses I really wanted to own, trading at compelling valuations. Otherwise, I’d continue to invest £500 per month in my first 12 picks, looking for the best value each month.

Wonderful businesses

I believe some diversification by industry and geography is sensible, but I reckon diversification for the sake of it is counterproductive for investment returns. I’d sooner buy a second wonderful business in one sector, than a poorer quality company in a different sector just for the sake of diversification.

What do I mean by a wonderful business? I’d look for companies operating in industries with good structural growth drivers. Within those industries, I’d look for companies with competitive advantages, such as powerful brands, valuable patents, high customer switching costs, network effects, and so on. I’d also look for strong management and balance sheets.

A great time to invest £500 a month

As I mentioned at the top of the article, if you’re looking to invest £500 per month in the stock market, now could be a great time to start. There are wonderful businesses trading at prices that haven’t been available for years.

These may be some of the best investments you ever make!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »