Adhering to standard professional investment advice and use of a Stockopedia stockranks strategy is in my view very sensible; own around 20 stocks in different sectors/industries that are of high quality. Review periodically and cull poor performers (and possibly profit warners).
However, I think that there is another aspect to investing in stocks that is also important. Namely, what types of stocks are held (eg growth vs income) and where they held.
Obviously the first port of call for holding stocks is a low cost ISA and/or SIPP. For those who are fortunate to have more to invest than their annual ISA/SIPP allowance a dealing account will be required. I think it is important to use this account effectively and to focus on 2 aspects.
1 Place stocks in your dealing account that are likely to generate a capital gain and realise the tax free gain each year (circa £11,000). Swap holdings between husband and wife if necessary.
2 Place low or zero income stocks in the dealing account and high dividend shares in the ISA account. (for example IQE in a dealing account and RDSB in an ISA). The governments current generous (£5000) tax free dividend allowance will not last.
As the market goes up and down long term strategies are important. Remembering that over very long term periods (a decade or more) the average value of stocks will either increase or remain static, but not fall. This suggests the following portfolio strategy;
High dividend FTSE100 (or FTSE350) shares have a low risk of total loss. A dividend of over 5% and in many cases overseas earnings protect against significant losses and fluctuations in the pound If the shares are held long-term particularly if they are bought in a drip feed fashion. This type of stock can be held very long term and this reduces dealing costs. The income generated is comforting during periods when the value of the stock declines In bear markets.
However, the greatest capital gains tend to be in the smaller companies. Therefore a balanced portfolio should include such stocks unless you are very risk averse. An additional advantage of AIM investments is the lower dealing cost. This is particularly the case as the need to trade will be greater in the lower capitalised companies as they fluctuate…
Interesting thoughts Nick
One area that you could also think about is funding a spreadbetting account and NOT utilising the leverage offered. Ie just invest what you have deposited. If you invest in sensible companies and generate a return, either income or capital, this is not subject to CGT or dividend tax and you dont even have to declare it on your tax return as it is classed as betting. The key is to be restrained at it may always be tempting to utilise the leverage offered (upto 10x on FTSE100 shares).
Another thought is which shares to put in your ISA - income or growth (ie capital return) shares.
Take the example of
Lloyds (income) vs Boohoo (growth)
For Lloyds, which currently yields 5.8%, if we assume you have other income and go over the basic thresholds, by using an ISA you shelter the marginal rate of dividends which is either at the higher rate of 32.5% or at the additional rate of 38.1%. Lloyds will probably see some capital appreciation over time but lets not assume its much.
Conversely a growth stock like Boohoo could be a very good idea for your ISA. Lets assume you followed Paul Scotts commentary and decided to buy Boohoo at 28p, you are now sitting on an 780% gain, which is sheltered from tax. You need a lot of Lloyds dividends to match this. Ok if you had it in a dealing account you could sell some along the way to take advantage of your tax allowance and even bed and spouse some more to take advantage of your wife's / husband's allowance if married. But still you are likely to be sitting on a sizable capital gain. So using ann ISA can be great for small cap growers (if they work...!).
Anyway, food for thought.
thanks for posting
