How to build up a stocks and shares Isa at any stage of your life

When it comes to investing, experts often say it is about time in the market, not timing the market.

And it is true that, by putting away money consistently when young, investors allow compounding to work to their advantage.

But it is never too late to start investing. Regardless of your age, there are plenty of options to maximise the returns in your stocks and shares Isa.

No one size fits all: Picking investments depending on your life stage helps maximise returns

While there is no-one-size-fits-all approach, assessing your investment horizon can help to narrow down the types of funds you should invest in.

We ask three experts for their top picks for your Isa, regardless of what stage of life you have reached.

Long investment horizon (Aged 1-18)

Junior Isas are a great way to put away money for your child’s financial future. It allows parents and other family members to pay into a tax-free account without compromising their own Isa allowances.

However, many parents opt for cash Jisas over stocks and shares, meaning that they are missing out on years of compounding returns.

Darius McDermott, managing director of FundCalibre says: ‘Generally, for young children, I would always recommend 100 per cent in equities. 

‘Having an extended time horizon means their portfolio can weather many market cycles, and therefore a large allocation to equities makes sense given they offer superior long-term returns.’

He suggests small-cap trusts like The Global Smaller Companies Trust, which has a heavy weighting towards collective investments and industrials. It is currently trading at a 13.6 per cent discount.

While small-caps can be more volatile, over longer periods like the full 18 years of a Jisa they tend to outperform.

Parents might also consider emerging markets funds and McDermott recommends Invesco Global Emerging Markets and JPM Emerging Markets.

Medium investment horizon (Aged 20-40)

Investors in their early 20s have a longer investment horizon too, so could also benefit from investing more heavily in equities.

Ryan Hughes, AJ Bell’s investment managing director recommends the HSBC FTSE All World Index Tracker, which tracks the global market and offers exposure to the biggest companies in the world

He says: ‘With a medium time horizon, the young investor can have exposure to equities, and, being relatively inexperienced, a global tracker provides an easy starting point.’

For investors in their 30s who have perhaps delayed investing, Hughes recommends Polar Cap Global Technology.

Over 10 years it has gained 387 per cent, and since its launch an annualised return of 11.69 per cent, outperforming the Dow Jones Global Technology index.

FundCalibre’s Darius McDermott suggests investors in their 20s and 30s maintain a strong equity allocation

‘While technology is certainly a hot asset class right now, it’s at the heart of almost all that we do,’ Hughes said. ‘While inevitably the fund may be a bit bumpy, it’s hard to look away from technology for a long-term investment.’

McDermott recommends first-time buyers saving for a deposit in their 20s or 30s should also maintain a strong equity allocation.

‘The average time it takes to build up that deposit now takes an average of 10 years – and a staggering 18 if you live in London – sticking with cash could result in over a decade of lost returns.’

McDermott recommends a balanced risk fund with a medium term horizon, like BNY Mellon Multi-Asset Balanced or Jupiter Merlin Balanced Portfolio.

‘Multi-asset funds offer a one-stop-shop for diversification across equities, fixed income, and alternative assets, mitigating risk and offering a steady stream of income, which can then be reinvested for better returns.’

Those saving for retirement might also look at a buy-and-hold global equity fund, like Lazard Global Equity Franchise.

‘The fund looks very different from its peers, with no style bias and a concentrated portfolio,’ says McDermott. ‘It seeks out solid industry leaders with natural monopolies, cost leadership, strong brands, intellectual property or high barriers to competition.’

Investors in their late 30s should also consider increasing their exposure to bonds, which look more attractive now than in quite some time.

Traditionally bond prices are seen as having an inverse relationship with the stock market. Investment theory says this means that they are better equipped to protect your investments in the event of a market downturn. It’s worth noting that isn’t guaranteed to always be the case.

McDermott recommends Baillie Gifford Strategic Bond and Nomura Global Dynamic as good starting points.

Short investment horizon (Aged 40- retirement)

As retirement creeps closer, income and capital preservation become an investor’s chief concern.

Hughes recommends Personal Assets Trust for those with more established portfolio because of its clear remit of trying to preserve capital first and then growing it. Its portfolio includes cash, bonds, equities and gold.

Over 5 years, its net asset value has grown 30.3 per cent while its share price has increased 27.3 per cent.

McDermott also suggests income-oriented funds TM Redwheel Global Equity Income and Trojan Global Income. 

Sam Benstead, collectives specialist at Interactive Investor, recommends Artemis Income ‘which actively picks UK shares that have high dividend yields, but is also happy to own lower-yielding shares that have excellent businesses and strong growth prospects.’

It has a yield of 3.8 per cent, and over the past 20 years shares have risen 390 per cent compared with 286 per cent for the FTSE All Share index.

For those who have already reached retirement, McDermott says ‘it is sensible to have a large allocation to high-yielding bond funds, such as Man GLG High Yield Opportunities, and income-focused multi asset funds such as VT Momentum Diversified Income. 

McDermott added: ‘These asset classes offer predictable income streams, helping to build a stable foundation for your retirement fund.’

This post first appeared on Dailymail.co.uk