I have a confession to make. Stock market investing didn’t interest me for much of my youth. It wasn’t until I was in my mid-20s that I opened my first Stocks and Shares ISA
Looking back, I could kick myself for missing out on years of potential portfolio growth, but life’s too short to have regrets. Now I’m in my 30s, I still have plenty of decades left to benefit from compound returns.
If I started investing from scratch today, here’s how I’d aim to build a substantial ISA over time.
New habits
Some bright young readers will have started investing very early. Others will have only realised the importance of investing further down the line.
Whichever camp aspiring investors are in, it’s important to establish regular and achievable savings goals. That means getting into good financial habits and focusing on future rewards.
At The Motley Fool we advocate taking a long-term approach to investing. While it’s tempting, I’d try to avoid getting sucked into alluring promises of ‘get rich quick’ schemes or day trading the latest hot stocks.
Slow and steady wins the race.
ISA investing
Armed with clear goals, it’s time to open a Stocks and Shares ISA.
With a £20,000 annual investment cap and tax-free treatment for capital gains and dividends, using an ISA is a great way to maximise returns and limit any tax due to HMRC.
There are plenty of ISA brokers to choose from. It’s worth carefully researching the best fit in terms of fees, product range, and functionality.
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.
It won’t be a smooth ride
It’s also worth remembering that share prices go down as well as up and no dividend payments are ever guaranteed. Stock market investing isn’t a risk-free endeavour.
There are handy ways to mitigate risks, such as portfolio diversification. However, I only felt comfortable making my first investments once I had a decent six-month emergency fund in high-yield instant access savings accounts.
Selling stocks in a downturn can be a painful experience, so I’m careful only to invest money I can set aside for the long term.
Finding the best stocks to buy
Finally, it’s time to buy some shares.
I aim to balance growth and income investing across my portfolio, but I’d like to highlight one company in my ISA that can offer both — defence giant BAE Systems (LSE:BA.).
Elevated geopolitical risks and tragic global conflicts have become key investment themes in recent years and BAE’s in pole position to benefit.
Recent contract wins include a UK Ministry of Defence deal to maintain and repair L119 Light Guns in Ukraine and an agreement to provide the US Space Force with a prototype missile warning system.
The firm’s 30-year history of dividend hikes, the recent acquisition of Ball Aerospace, and expanding NATO defence budgets all add weight to the investment case.
That said, the company’s exposed to energy price shocks and potential supply chain disruption. Any nasty surprises could hurt the share price.
Nonetheless, the business recently confirmed FY24 trading is in line with expectations. It anticipates 10%-12% sales growth, an 11%-13% rise in underlying EBIT, and a 6%-8% increase in underlying earnings per share.
Overall, I believe it’s a stock well worth considering.
