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Stocks and Shares ISAs are brilliant investment vehicles. Not only can an investor access a wide range of assets (stocks, funds, investment trusts, etc) but they can also invest completely tax-free.
Of course, the challenge is working out where to invest as there are so many options. With that in mind, here’s a look at how I’d invest £20,000 in one of these ISAs (for the long term) today.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Balancing risk and reward
One portfolio construction strategy I’m a big fan of is ‘core-satellite’ investing. This involves putting the bulk of the money into broad market-based investments such as global equity funds (‘core’ investments) and then a little bit of capital into more exciting – and potentially more lucrative – investments (‘satellite’ investments) to strike a balance between growth and risk.
If I was investing £20,000 in an ISA today, I’d use this approach. By allocating a substantial amount of my capital to global equity funds, I could lower my risk levels dramatically and hopefully avoid catastrophic losses. Meanwhile, by putting some money into more adventurous investments, I could potentially generate higher returns and beat the market.
Core investments
As for the core part of my investment, I’d go for a selection of investment funds. One tracker fund I’d probably go for is the Vanguard FTSE Global All Cap Index. With this product, I could get access to 7,000 stocks for very low fees.
Meanwhile, on the actively-managed side, I’d probably go for Fundsmith Equity. This fund – which is focused on high-quality stocks – has a higher fee but has an excellent, market-beating, long-term track record.
I’d allocate 75% of my £20,000 to the core funds, leaving me with 25% of my money (£5,000) for more exciting investments.
Satellite investments
As for the satellite investments, I’d focus on technology stocks. Because the world is only going to become more digitalised in the years ahead.
And one stock I’d allocate some capital to is Amazon (NASDAQ: AMZN), which is a leader in e-commerce, cloud computing, artificial intelligence (AI), and several other areas of technology.
Amazon stock has essentially been ‘dead money’ for the last two-and-a-quarter years. After experiencing a big drop in 2022 as interest rates surged, it has taken a while to recover.
I reckon it’s poised for its next leg higher however. The reason I say this is that after years of cost cutting, the company’s profits are now surging. This year, for example, the company is expected to generate a net profit of $44bn – 45% higher than last year.
At the same time, its valuation is at historically low levels. Currently, the forward-looking price-to-earnings (P/E) ratio is just 44 (falling to 35 using next year’s earnings forecast). That’s high by UK standards, but low for Amazon, which has historically been a very disruptive company.
Of course, investing in individual companies involves a higher level of risk. And one major risk here is a slowdown in cloud spending by businesses. This could hit revenue and profit growth.
Taking a long-term view however, I’m very bullish on Amazon. I reckon it has bags of potential in today’s digital world.