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The new 2025-26 ISA year isn’t far away now, which means investors like myself will get a new £20,000 tax-free contribution limit to try and build long-term wealth with.
Here are three things I’m doing as the new ISA year approaches.
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.
Looking back
One is looking back to review my strategy. What worked? And perhaps more importantly, what didn’t? I already know one thing that didn’t work for me over the past 12 months. That was doubling down on companies where the underlying fundamentals weren’t really improving.
Take spirits giant Diageo (LSE: DGE), for example. This is a FTSE 100 stock I owned for a long time, despite it not performing as I had hoped. It’s down 47% in three years.
The firm’s been hit by a number of challenges, including high inflation, weak demand in Latin America, and an increasingly sober Gen Z.
Despite management warning about the tough trading conditions, I decided that the company’s legendary brands — including Guinness, Tanqueray, and Johnnie Walker — would underpin overall growth at some point.
Meanwhile, the stock looked good value and the dividend yield had increased to 3.5%. So I bought more shares in July at £23.The price now? About 12% lower at £20.22!
Thing is, Diageo still looks great value, on paper. The forward price-to-earnings ratio is 15 and the forecast dividend yield is 4%. Perhaps the bottom is in and sales will pick up.
However, after years of underperformance, my patience finally ran out and I sold my shares. But I’ve hopefully learnt my lesson from this value trap — avoid doubling down on a struggling stock when there’s no sign of recovery on the horizon.
Also, the UK small-cap side of my portfolio hasn’t done very well over the past year. Ashtead Technology and hVIVO have underperformed, as have most other AIM-listed shares. So I won’t be throwing good money after bad by doubling down on struggling small-caps.
Looking forward
So what do I plan on doing differently over the next year? Well, it’s the flip side of not adding to my losers. That is, I plan to add to companies in my portfolio that are doing well and getting stronger.
Some stocks I’m thinking about here include InterContinental Hotels Group, chipmaker Taiwan Semiconductor Manufacturing (TSMC), and Toast, the cloud-based restaurant management software company. I’d like to add to these at current valuations.
There is a caveat here though: valuation. There are other companies that I would like to own more shares of, but not at the current price.
Examples include Intuitive Surgical, Shopify, Games Workshop, Ferrari, and cybersecurity firm CrowdStrike. All excellent companies with strong competitive advantages, but their current market values already reflect this. So I’ll wait patiently to add to them.
Diversification
Most of the names above are growth stocks. So to stop my portfolio from becoming unbalanced, I plan to opportunistically add to high-yield dividend stocks. While no payout’s certain, I like the look of Legal & General from the FTSE 100 right now. It’s yielding a mouth-watering 8.7%.
Along similar lines, I plan to dig into investment manager M&G a bit more while its yield stands above 9%. That level of income could help boost my ISA returns over the next 12 months.
