A false start recommended bonds and gold — for a Stocks and Shares ISA!

A second try suggested 70% in global developed markets, 15% in emerging markets, 10% in UK stocks, and 5% in global small-cap stocks.

Well-diversified funds

It went entirely for exchange-traded funds (ETFs), with alternatives in each of the four categories — including the iShares Core FTSE 100 UCITS ETF and iShares FTSE 250 UCITS ETF index trackers for the UK equities portion. I rate those highly for ISA newcomers to consider as a way to get started, with diversification thrown in.

For global stocks, it suggested iShares MSCI World UCITS ETF (LSE:IWRD), and I want to take a moment to examine that. The fund aims to track the performance of its benchmark, the MSCI World Index.

To achieve that goal, the fund invests in companies on stock markets in 23 developed countries, and says it covers around 85% of the listed stocks in each country.

Over the past 10 years it’s hit the benchmark target pretty much bang on in every single year. And its fees are low, with a total expense ratio of 0.2%.

Reinvest now, cash later

The fund also has a version under the ticker symbol IWDA, which reinvests dividend cash. So investors can build up a portfolio today and then switch between versions to take dividend income in the future. Yes, this could be a good one to consider for starting a new Stocks and Shares ISA.

A fund like this provides a huge amount of diversification in just a single investment. But I’d still be wary of having all my money managed by one provider. Going for this kind of ETF-based ISA, it might be wise to considering choosing each fund from a different provider.

I think my biggest criticism is that this goes for too much diversification, if anything. And the UK stocks allocation is way too low for my liking.

A UK investor?

So I asked ChatGPT for some individual equity suggestions. And it went overboard on high-flying US tech stocks.

It ranked ‘US mega-cap compounders’ first, with ‘tech and innovation’ second — totalling 60% of its suggested cash allocation. In the list were Apple, Nvidia, Microsoft, Alphabet…

In another query I asked it to find the biggest Stocks and Shares ISA mistakes, and one of the top ones was… buying shares that have already gone up. Hmm.

I should put only 15% of my money in UK high-quality stocks, it suggested. In a Stocks and Shares ISA, valid only for UK residents? I invest in what I know, and I know UK stocks. So that’s what I mostly buy.

What to learn

Overall, there are definitely some interesting starter ideas here, but they mostly miss my needs. I’ll probably come back to it and try to narrow it down some more.

ChatGPT can be very good at searching and summarising large amounts of data. Just don’t make the mistake of thinking there’s any understanding behind it.

The post I asked ChatGPT to build the perfect Stocks and Shares ISA, and it said… appeared first on The Motley Fool UK.