3 stocks I’d buy in a freshly minted £20,000 Stocks and Shares ISA

My own Shares and Shares ISA is getting worse over time. In fact, I would say it is quite battle-hardened, has experienced rises, falls, bull and bear markets, as well as the odd accident or two.

I’ve definitely made some mistakes investing in ISAs along the way. For example, I sold a long-held position Tesla stock in 2018, not long before the automaker started reporting profits and the stock continued to rocket almost 15 times!

Fortunately, I have also made some good investments to make up for those duds. Here are the three stocks I would buy today if I had £20,000 in my new ISA.

Diversification

Diversification may seem cliché, but it is critical. Warren Buffett says “protection against ignorance“. And when I was just starting out, I was obviously still learning. So diversification will help reduce your own ignorance.

For example, say I really like growth stocks. So I decided to build my portfolio around that and bypass what I thought were boring stocks. That might work for a while, but then I could be nursing some big paper losses if and when this approach stops working. To make matters worse, those boring stocks I avoid may be marching further when my portfolio goes down.

This is not hypothetical. That’s actually what happened last year. Growth stocks, many of which only seemed to rise for about 10 years, suddenly collapsed. Value stocks, particularly in the energy and mining sectors, rose in value.

A wise strategy is for me to diversify and hold different stocks in different sectors.

Basketball approach

At Vanguard S&P 500 UCITS ETF is a very popular choice for investors who want to invest in a variety of stocks. It is a low-cost exchange-traded fund (ETF) that tracks the performance of the 500 largest companies listed in the US.

This ETF’s share price is down 7% since August. So now could be the right time to buy.

I will also invest in a FTSE 100 ETF. This will give me shares in the largest 100 companies listed in London, as well as an expected 3.7% dividend yield.

While this investment will give me quick exposure to hundreds of powerful multinational companies, they are not sure bets. There are risks involved, at least in the short term. But long-term, the UK and US stock markets tend to rise higher. Having this will help my ISA grow together.

Personally, I would buy both of these ETFs today if my capital wasn’t already allocated elsewhere. But I’m planning to improve Scottish Mortgage Investment Trustwhich I also bought to start an ISA.

This is an actively managed portfolio of growth stocks, making it riskier. Managers pick individual stocks, and that means there is more room for poor performance if the horse is wrong.

The flip side is that the trust can generate market returns, which is what it provides for long-term shareholders. The stock is up 342% over 10 years, outperforming all major indexes.

With top ownership now like ASML and SpaceX, I think the stock could rise again over the next decade.