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Last week saw the dawn of another tax year and with it, for many investors, a brand new ISA allowance.
A lot of attention gets paid to the £20,000 maximum annual contribution many people can make to an ISA. But of course not everyone has a spare £20k lying around – or anything near it.
The good news is that that is just a maximum. It is possible to start investing in an ISA with far less.
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.
Putting £800 to work
I reckon £800 is ample to get going.
For example, an important though simple principle of risk management for stock market investors is diversification. That basically means not putting all of your eggs in one basket.
Another consideration is whether fees and costs will eat up a disproportionately high percentage of an ISA. I think £800 is enough that that need not be the case, though to try and avoid that risk it makes sense for an investor to compare different Stocks and Shares ISAs to see what one suits their needs best.
Setting an objective
Different people have different goals when they invest.
For some, earning passive income in the form of dividends is the name of the game. For others, buying shares that look undervalued and holding them for the long term in the hope of serious share price gain is what they want. Some investors aim for both dividends and share price growth at once.
Even with £800 I think it makes sense to get clear about objectives and then make investment choices based on that.
Finding shares to buy
Having an objective is one thing – how about bringing it to life?
The recent stock market turbulence has thrown up some potentially excellent buying opportunities for an ISA in my opinion.
But it can be an unnerving time for any investor, let alone a new one. Sticking to an area one understands makes sense. Rather than just comparing the price of a share now to what it was before, I think the approach is the same as a savvy investor always uses: looking for shares that are priced well below what the business outlook suggests they ought to be worth over the long run.
One share to consider
As an example, one share I think investors should consider for an ISA at the moment is Scottish Mortgage Trust (LSE: SMT).
This is an investment trust, meaning it holds stakes in a variety of different companies. So it can offer some level of diversification even to an investor with just a few hundred pounds to spare. It can also buy stakes in private companies that do not typically sell shares to small private investors. For example, Scottish Mortgage has a stake in rocket company SpaceX.
Scottish Mortgage shares have moved around a lot over recent months due to the trust’s large exposure to tech shares like Nvidia and ASML. With the tech sector still reeling from US tariff uncertainty and cooling investor enthusiasm, I see a risk that that will hurt the net asset value of Scottish Mortgage further – and its share price.
I see investing as a long-term activity, however. Scottish Mortgage has a proven ability to find tech winners early on.
