With the new tax year under way, we have a fresh £20,000 ISA contribution limit to invest in the stock market. That’s a decent chunk of cash to try and create long-term wealth with.
Here, I want to see how much a typical share investor would have made if they put £20k in an ISA 12 months ago.
Okay, let me clarify something straight away: there is no such thing as a ‘typical’ investor. Each of us has a different investing style, which influences what we buy on the stock market. More ambitious investors may have targeted large capital gains with growth stocks, for instance. Risk-averse share pickers may have preferred the comfort of income-paying dividend stocks like utilities, telecoms and banks. And the returns they enjoyed would have different accordingly.
Many shrewd investors would have enjoyed supersized gains with UK shares. There are 16 stocks on the FTSE 100 and FTSE 250 that have doubled in value or more in the last year. These include FTSE-listed Airtel Africa, Fresnillo and Lion Finance — these have risen 137%, 287% and 103%, respectively.
But then lots of stocks haven’t faired nearly as well. Many popular growth shares like Greggs and Sage have actually fallen over the last year.
With roughly 2,000 stocks just on the London stock market, there are many ways investors can target a target a juicy ISA return. And that’s excluding the many exchange-traded funds (ETFs) that track certain indexes or particular themes. So there’s no one universal answer as to what a £20,000 ISA would have returned over the last 12 months.
But what about someone took the simple option and bought two index trackers: one that followed the FTSE 100, and another that tracked the FTSE 250? They’d have made a pretty solid return, enjoying a return of 23% on the first and 13% on the other.
If our investor split a £20,000 investment equally across these trackers, they’d have £23,600 sitting in their ISA today.
Investing in tracker funds could be another profitable play over the next year, too. But amid rising instability in the Middle East, choosing individual stocks to buy could be a better option to consider.
National Grid (LSE:NG.) is one stock from the FTSE 100 I feel deserves a close look. Like any share, it isn’t totally immune to events in Iran and the broader region. Surging energy prices could cause an inflationary shock, pushing up interest rates and driving borrowing costs northwards. Given the company’s high debts, this would be a problem.
Yet National Grid shares could still be a more stable pick than most. It operates in a highly defensive industry, generating reliable cash flows that underpin dividends. Speaking of which, the dividend yield here is an index-beating 3.9%.