Investing money in UK shares in a Stocks and Shares ISA could be a profitable long-term move. After all, the stock market has produced annualised total returns in the high-single-digits over recent decades.
Of course, there are risks ahead from factors such as a weak economic outlook and changing investor sentiment following the recent stock market recovery. However, by focusing an investment of £3k, or any other amount, on a diverse range of strong businesses, it may be possible to earn impressive returns in the coming years.
Diversifying within a Stocks and Shares ISA
Diversification may not be the obvious place to start for some investors when buying UK shares in a Stocks and Shares ISA. However, risks are always relatively high in equity markets. Therefore, any company can experience poor financial performance that negatively impacts on its share price prospects.
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Due to the introduction of regular investment services, it’s possible to build a diverse ISA portfolio without spending a vast amount of money on commission. For example, many share-dealing providers offer regular investment services (that can be used for one-off trades, if required) that reduce the cost of a trade to as little as £1.50. This makes them ideal for investors who have a limited amount of capital, but for whom diversifying across a wide range of companies remains a key consideration.
Buying attractive UK shares
Buying UK shares with dominant market positions in a Stocks and Shares ISA may also help to reduce risk. They may be better placed to survive what could prove to be a tough period for the economy. For example, they may have a dominant market position that provides greater stability during a period of weaker sales growth.
Furthermore, buying companies with competitive advantages may lead to higher returns in the long run. They may be able to deliver higher profit growth than sector peers as a result of larger margins and a more resilient financial performance. This may result in a rising share price, as investor sentiment could become more positive in response to a growing bottom line.
Investing in growth opportunities
Of course, buying UK shares that operate in industries with attractive growth prospects could have a positive impact on the value of a Stocks and Shares ISA. Identifying such industries is challenging due to present economic weakness. But some sectors look set to benefit from structural changes that may lead to growth opportunities for some businesses.
For example, digital retail, healthcare and low-carbon assets could be growth areas over the long run. Through diversifying among sound businesses within those areas, as well as others, it may be possible to earn attractive returns over the long run. And that could lead to an increasing ISA portfolio value.
