Now more than ever it’s time to plan for the future. The uncertainty that Covid-19 has thrown up has made most people revisit their finances. But the dream of retiring early (and having enough money to fund this) doesn’t have to be thrown in the bin. There are still some great opportunities within the stock market to generate enough profit to aid early retirement. And by adding the stock you buy to an ISA, you can further enhance its potential.
The benefit of putting stocks you like into a Stocks and Shares ISA is that you don’t have to pay capital gains tax when you sell the stock for a profit. The capital gains tax rate varies depending on your income, but would usually be somewhere between 10% and 20%. This is significant enough to hamper plans to retire early, especially if the stocks you hold perform very well. So using this Government-approved wrapper to remove the need to pay the tax makes sense for investors.
One stock I’d buy
Ferguson (LSE: FERG) is a large plumbing and heating group. It mainly operates in the UK under the Wolseley brand, with over 500 stores. The share price has been performing well recently and is almost back to pre-crash levels. I think this reflects the confidence that investors have with buying the brand at the moment. It operates in a defensive sector, that of consumer staple products.
Trade supplies will always be needed, regardless of the state of the economy. This means that financial results for this year are unlikely to be hampered significantly. This was highlighted with revenue growing by 0.9% year on year in the three months to April 30.
It’s true that the UK only accounts for about 10% of group revenues. Yet the inelasticity of demand for trade supplies remains, wherever in the world it’s being sold.
One stock I’d avoid
At the moment, I’d be staying away from Royal Dutch Shell (LSE: RDSA). Back in April, the firm cut the dividend payout by 66%, in order to help ease cash flow and retain funds for operations. This likely discouraged income investors from buying the stock, as it hadn’t cut dividends since the Second World War.
More recent news has shown that the firm is likely to cut £18bn from the value of its oil and gas assets. This is in large part due to the slump in oil prices seen recently. This is taken on as impairments, so it’s not an actual cash loss, but is still concerning. The reduction in value links to the level at which the firm is forecasting oil will trade over the next couple of years. It has downgraded the forecast, which inevitably will have a knock-on impact on both asset values and future profitability.
The oil price slump can be argued to be a by-product of the pandemic, and so although I’d avoid Shell for now, it’s still a stock to keep an eye on for a potential buy further down the line.
So with one stock to buy now for the ISA, and another to keep an eye on, there’s plenty to get involved with. Making your money work harder now will increase the chances of being able to retire early. There’s no time to lose.
Jonathan Smith and The Motley Fool UK have 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.