The 6th April marked the beginning of the 2019/2020 ISA year, meaning investors now have a fresh ISA allowance of £20,000 for both Cash and Stocks & Shares ISAs, and £4,000 for Lifetime ISAs. With that in mind, here’s a look at how I’m investing my ISA money this year.
Two ISAs The first thing to note about my strategy is I’m investing my money into two different ISAs. I have a Stocks & Shares ISA and a Lifetime ISA. Both are with Hargreaves Lansdown (LON:HRGV) as I find its platform very easy to use.
The reason I’ve gone with these kinds of ISAs is that both allow me to hold a wide variety of growth investments, meaning I have the opportunity to grow my money at a healthy rate.
Each of these has its own unique advantages. For example, the main benefit of the Stocks & Shares ISA is its flexibility. If I need access to these funds, I can easily make a withdrawal. In contrast, the main advantage of the Lifetime ISA is its 25% bonus top-ups on contributions. Given that I can’t access the money in this ISA until I turn 60, I’m using that one as a retirement account. I haven’t bothered to open a Cash ISA because interest rates are too low.
Dividend stocks Turning to my investments, the bulk of my ISA money (approx 70%) is invested in FTSE 100 dividend stocks. The reason for this is that one of my investing goals is to build up a passive income stream from dividends that is one day large enough to live off.
Generally speaking, I tend to invest in dividend-paying companies that regularly increase their dividend payouts. The logic behind this is that every time one of these companies lifts its payout, I get a pay rise. Therefore, my passive income stream is always snowballing. Dividend growth also tends to produce capital growth over time too, meaning my long-term total returns should be robust.
Some of my top holdings include Legal & General, Unilever (LON:ULVR), and Prudential (LON:PRU) – all companies that have good track records when it comes to dividend hikes.
Growth investments Alongside my dividend investments, I also have an allocation to growth investments. This segment of my portfolio (approx 20%) is a mix of stocks and funds. For example, I have stocks such as Hargreaves Lansdown and Rightmove in my portfolio, as well as some top funds such as the Fundsmith Equity fund and the Lindsell Train Global Equity fund. Note that both of these are global funds, meaning I have exposure to international markets such as the US.
Cash on the sidelines Finally, I’ll also point out that I do have a little bit of cash (around 10%) sitting in my ISAs right now ready to be deployed when attractive opportunities present themselves.
Overall, my ISA investing strategy is nothing too complicated. The dividend section of my portfolio provides stability and regular income that can be reinvested, while the growth section is designed to achieve capital gains. The cash is ready to be invested when an attractive opportunity comes up.
I figure that if I can keep investing into my ISAs on a regular basis, by the time I get to retirement age my ISA balance should be looking quite healthy.
Edward Sheldon owns shares in Unilever, Legal & General Group (LON:LGEN), Prudential, Rightmove, Hargreaves Lansdown and also has positions in the Fundsmith Equity fund and the Lindsell Train Global Equity fund. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Hargreaves Lansdown, Prudential, and Rightmove. 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.
Motley Fool UK 2019