With the increase in ISA allowances in the budget yesterday and the chance it gives to shelter more cash in a flexible tax free wrapper - thought any aspiring ISA millionaires out there might be interested in this.
This is the third and final part in my series of articles looking at the why, what and how of Compound Income? . As the title suggests this one will look at how I approach portfolio construction.
So lets start at the beginning - which seems like a good place to start. This was when I started investing seriously in a Portfolio when self select Personal Equity Plans (PEP's) first became available in the early 1990's. Prior to that I had had a few shorter term investments in some early privatisation stocks like BT and BG and traded a few other stocks in a small way for some quick profits and held a few investment trusts.
With the arrival of PEP's I decided to get more focussed on building a portfolio in a tax free environment as I wanted to maximise my after tax total returns and this seemed to be the logical place to do it. This was even though I had a CGT allowance and the amount was limited to £6,000 so the savings in tax were not that great upfront, nevertheless I felt the long term benefits would be worthwhile, although I intend to come back and debate this in another post at some point.
So out of necessity I started small and split the modest sum between 2 or 3 stocks, accepting that this was risky and under diversified. I took a long term view that I would build the number of stocks up as each years allowance came and the income compounded up. Thus over time I built the portfolio up, gradually increasing my unit size (value of holding) and number of stocks as the years went by. However, as it is generally accepted that you can diversify a large majority of the market risk with just 15 holdings I have not gone too much further than this number of stocks in my PEP or ISA as it now is. So once having built it up to a reasonable level I have tended…
