The 2022/2023 ISA deadline isn’t far off. As a result, investors all over the country are topping up their accounts. Have cash in a Stocks and Shares ISA and wondering where to deploy it? Here are three investment ideas to consider.
Low-cost investing
Let’s start with tracker funds. These are investment funds that track indices such as the FTSE 100, the S&P 500, and the Nasdaq 100.
There are several advantages of investing in tracker funds. One is that they provide diversified exposure to the stock market. This diversification lowers investment risks.
Another is that they tend to be very cost-efficient. Ongoing fees and charges for these products are generally very low, meaning they can save investors a lot of money, over time.
On the downside, tracker funds are never going to beat the market. But this isn’t a huge issue. Over the long term, global stock markets have generated very attractive returns.
One tracker fund I believe could be a good core holding is the Vanguard All-World UCITS ETF. This is a diversified exchange-traded fund that provides exposure to nearly 4,000 stocks globally. Fees are just 0.22% a year.
A chance to beat the market
An alternative to tracker funds is actively-managed funds. These also provide diversified exposure to the stock market. However, unlike tracker funds, they’re managed by portfolio managers. These investment professionals aim to beat the market over time by picking individual stocks for their funds.
An advantage of investing in these funds is that it’s possible to achieve higher returns than the broader stock market.
The main disadvantage is the fees. Generally speaking, fees for actively-managed products are considerably higher than those for tracker funds.
One fund I hold in high regard is Fundsmith Equity. It’s a global equity fund managed by Terry Smith. It has a great track record having returned about 16% per year since its inception in late 2010 (versus 11% for the stock market). Past performance isn’t an indicator of future performance though. Over the last year, it’s only returned about 4%.
Even higher returns?
A third idea is investing in individual stocks. Now this approach is riskier than investing in tracker funds or actively-managed products. When buying individual stocks, an investor has more exposure to individual company risks.
However, on the flip side, the rewards can be bigger. Pick the right stocks, and the returns can be very impressive.
For example, investing £5,000 in London Stock Exchange Group 10 years ago, would now equate to around £31,000 (plus dividends). Investing $5,000 in Tesla (which is listed in the US) a decade ago would now amount to about $380,000.
Now, not every stock is going to perform like these. For every London Stock Exchange Group or Tesla, there are plenty of stocks that have tanked over the last decade.
The key to this investment approach therefore, is diversification. By investing in a variety of stocks across different industries and markets, investors can set themselves up for success.
