The end of the tax year is fast approaching. So I am starting to think about how I will invest my Stocks and Shares ISA allowance for the year ahead.
I usually like to make the most of my ISA allowance as soon as possible at the beginning of every tax year. Indeed, research shows that investors who use as much of the allowance as possible, as quickly as possible, can generate better tax-free returns.
However, what really matters is my own personal financial situation at the end of the day. If I cannot take up the entire allowance at the beginning of the tax year, it is not the end of the world.
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It is still possible to invest regular sums throughout the year as there is no restriction on when I can invest in a Stocks and Shares ISA. The only limitation is the amount of money I can put away during the tax year. This is limited to £20,000.
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.
Choosing Stocks and Shares ISA investments
When looking for investments for my ISA, I focus on both income and growth plays. I think these allow me to capitalise on the unique tax advantages provided by these wrappers.
I also look for a mix of investment funds as well as single stocks. One of my favourite investment funds at the moment is BlackRock Throgmorton. This trust tries to outperform by acquiring a portfolio of small-cap growth stocks. It also offers a modest dividend yield of 1.3%, at the time of writing.
I think this trust provides the perfect blend of growth and income to hit my ISA goals.
That said, this trust does charge a performance fee as well as a regular management fee. These fees could eat away at my returns in the long run. And if the fund fails to pick the right investments, performance could be even worse. These are the most significant risks and challenges of using an investment trust to invest in the stock market.
These risks are why I would also buy a portfolio of single equities for my Stocks and Shares ISA.
Single stocks to buy
Two equities I would buy are BAE Systems and Vodafone. With yields of 4% and 6% respectively, these companies are desirable income investments. They also have growth tailwinds. BAE’s sales and profits should benefit from increasing military spending. Meanwhile, the mobile data revolution could drive growth at Vodafone.
Challenges these companies may face as we advance include rising costs and competition, which could hit profit margins. However, considering their growth and income potential over the next few years, I think these corporations would make fantastic additions to my tax-efficient portfolio.
