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

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Investing a lump sum of £20,000, or any other amount, in a Stocks and Shares ISA can seem like a daunting process at first. But it doesn’t need to be.

Today, there are hundreds of tools and thousands of funds investors can make use of to get their money working as hard as possible. 

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Here, I’m going to explain the strategy I’d use to invest £20,000 in a Stocks and Shares ISA right now. 

Stocks and Shares ISA options

In some respects, investors are spoilt for choice when it comes to choosing investments for an ISA. There are really three main buckets of investments to choose from. These are individual stocks, stock and bond funds, and investment trusts. 

All of these products have separate advantages and drawbacks and could provide investors with different long-term returns. Buying a basket of high-quality blue-chip stocks could be the best way to invest a lump sum if you’re confident buying individual companies. 

Stocks like Unilever and Diageo, world leaders in their respective fields, maybe the best long-term for a Stocks and Shares ISA. Both companies have strong track records of producing large total returns for investors. They also own portfolios of billion-dollar brands, with extensive customer followings around the world.

This suggests both businesses have substantial competitive advantages. History shows us that companies with strong competitive advantages usually produce the best returns for investors in the long term. 

Trusts and funds

Investment trusts are very similar to single stocks. The critical difference is that these companies own a basket of stocks and shares. As such, they could be an excellent way for investors who aren’t confident in picking their own investments in the market through a Stocks and Shares ISA. 

Investment trusts don’t have to be purely stock-focussed. They can invest in anything. For example, at least one trust on the market manages woodland. Another provides battery storage facilities for the UK electricity grid.

This diversification means investment trusts are perfect for investors who want to gain exposure to markets that may not necessarily be accessible to the average investor. 

Finally, Stocks and Shares ISA investors can buy investment funds. These are very similar to investment trusts. They own a basket of stocks and shares and charge and management fee for doing so.

However, unlike investment trusts, investment funds aren’t necessarily suitable for owning non-traditional access. In recent years there have been several cases where investors have seen their funds frozen due to the illiquid nature of the underlying assets. That’s why these products may not be suitable for every investor. 

Putting it all together

I think a combination of all of the above assets would be the perfect way to invest a lump sum.

A portfolio of high-quality blue-chip stocks alongside investment funds would give investors a lot of exposure to the stock market.

Meanwhile, a select number of investment trusts would provide exposure to non-traditional assets. These assets would reduce exposure to the stock market and may provide more stable returns for a Stocks and Shares ISA over the long run.

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Rupert Hargreaves owns shares in Diageo and Unilever. The Motley Fool UK has recommended Diageo and Unilever. 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.

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