Here’s how I’d use a £20K Stocks and Shares ISA to try and build wealth

Christopher Ruane explains the long-term approach he takes when finding both income and growth shares to buy for his Stocks and Shares ISA.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businesswoman calculating finances in an office

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As a believer in long-term investing, the timeframe of a Stocks and Shares ISA suits me well. By putting money in today and then investing it thoughtfully, hopefully I can build up a sizeable sum in years and even decades to come.

Setting goals and a plan for investing

Say I had £20k (though the same approach could work with lesser amounts, albeit the results would be proportionately smaller).

With building wealth as my goal, I could immediately think about what plan might help me achieve that goal. For example, I might focus on compounding dividends from income shares, buying growth shares, or a combination of both approaches.

Should you invest £1,000 in Standard Chartered right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Chartered made the list?

See the 6 stocks

Whatever my approach, I would want to reduce my risks by spreading the money over a number of different shares. Starting with £20k is ample to do this.

Finding shares to buy

I would be keen to avoid a mistake commonly made by investors seeking to grow the valuation of their Stocks and Shares ISA quickly. That is basically being greedy without being financially realistic.

For example, a share with an unusually high dividend yield might not keep paying out at that level. A growth share that has doubled in the past year might double in the next year. In either case, just paying attention to what has happened in the past is not necessarily an indication of what to expect in future.

Rather, I would focus on the underlying business and how I expect it to perform in the future.

Looking to the long term

As an example, consider an income share I own, M&G (LSE: MNG). The area it operates in – asset management – benefits from high demand and I expect that to remain the case. That can translate into sizeable fees. In turn, that helps firms like this to make profits and pay dividends.

M&G’s policy is to maintain or increase its dividend per share each year. Whether it manages to do that will depend on how its business performs. One risk I see is that a nervous market could mean asset values slump at some point, leading to lower profits for M&G.

From a long-term perspective though, I see a number of strengths for the firm including having a well-known brand and large customer base. At the moment, its dividend yield of 10% makes it into a group of the most generous dividend payers in the FTSE 100.

Getting started now

Buying into a diversified range of high-quality businesses when they have an attractive share price could hopefully help me build wealth over years to come.

My first move would be to choose the best Stocks and Shares ISA for me, put my money in and start finding compelling investment ideas.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane has positions in M&g Plc. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Businesswoman calculating finances in an office
Investing Articles

Down 23% with a 6.5% yield, this FTSE 250 dividend gem looks undervalued to me!

Not many stocks on the FTSE 250 have a low valuation, high dividend yield, and solid growth potential. Our writer…

Read more »

Investing Articles

Is Tesla stock running out of road?

Tesla stock’s been tumbling over the past couple of months. This writer would like to own some -- but has…

Read more »

Investing Articles

£20,000 in savings? Here’s how it could be used to target a £278 monthly second income

Our writer illustrates how £20k could lay the foundations for a second income of several hundred pounds a month over…

Read more »

Photo of a man going through financial problems
Investing Articles

I asked ChatGPT to name the FTSE 250 share it would buy in a heartbeat – and it went mad!

Harvey Jones wondered whether artificial intelligence was up to the job of finding him a brilliant FTSE 250 share to…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the BP share price primed for lift off?

As an activist investor takes a substantial holding in BP, Andrew Mackie assesses what it will take to energise the…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

No savings? I’m using the 5-step Warren Buffett method as I aim to get rich

Christopher Ruane outlines a handful of investment techniques he uses, inspired by the incredible stock market record of Warren Buffett.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a spare £3,000, here’s how a new investor could start buying shares

Our writer explains how someone with a few thousand pounds and no prior stock market experience could start buying shares…

Read more »

UK money in a Jar on a background
Investing Articles

£10,000 invested in Greggs shares in 2020 has made this much passive income…

Greggs shares have struggled lately due to economic weakness and rising costs. Are they still worth considering for an ISA…

Read more »