Investing through a Stocks and Shares ISA is one of the most efficient ways for investors to start putting their money to work.
With a £5,000 lump sum, here’s how I’d invest with one today.
The benefits
Saving £5,000 is no mean feat. Therefore, I’d want my money to work as hard as possible. That’s why I believe an ISA’s a great option.
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Each year, every investor is granted a £20,000 use-it-or-lose-it limit to invest. There are many benefits to this. The most important one is that with the profits I make through my ISA, not a penny’s paid in tax.
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.
Diversification
With £5,000, I wouldn’t invest it all into one stock. Instead, I’d diversify across five to 10 companies.
That way, I’d offset risk. Investing in one company or industry would make me more prone to any blips or volatile periods. After all, volatility in the stock market’s inevitable.
As I said, I want to ensure I’m in the best possible position to maximise my returns. Diversifying my portfolio does this.
High-yielding stocks
Finally, I’d also target companies that pay a dividend yield. This means I can make passive income from my investments.
With the money I receive, I have two options. I can either pocket it and use it to pay for bills, or use it for luxuries such as holidays.
However, I’d opt for the second option. That’s reinvesting the dividends I receive. By doing so, I’d benefit from compounding. Essentially, I’d be earning interest on my interest. While this may seem insignificant in the near term, over the long run it makes a massive difference.
My pick
Going on the above, it’s stocks such as ITV (LSE: ITV) I’d target. Its share price has severely underperformed in the last five years. During that time, it’s lost 37.7% of its value.
However, up 18.1% in 2024, the stock seems to be gaining momentum. Even with those gains, it still looks cheap. It’s trading on just 9 times earnings in 2025 and 7.5 in 2026. That’s way below the FTSE 100 and FTSE 250 average.
There’s a reason its shares look so cheap today. The traditional advertising market’s suffered in recent years. It’s no secret it’s a flagging industry. As inflation has run rampant, companies have reduced their outlay on TV spending. In the years to come, I suspect this trend to continue.
That said, I’d still buy the stock today if I had the cash. That’s because I’m bullish on the moves it’s making in the digital space.
In the last few years, ITV has shifted the focus to its digital channels. So far, it seems to be paying off. Last year, revenues for the unit climbed 19% to £490m. With that, ITV remains on track to achieve its £750m revenue target by 2026.
Furthermore, the stock boasts a 6.8% dividend yield, way ahead of the Footsie average. Last year, its payout totalled 5p. In the medium term, management has said it intends to grow this.
I like the look of its shares. And while I’d aim to diversify my portfolio, it’s companies like ITV I’d target.
