How I’m investing £20k in my Stocks and Shares ISA

The new financial year is upon us, which means a new £20,000 Stocks and Shares ISA contribution limit. Every year I make it a priority to use as much of this as I can – it just makes sense from a tax perspective.

But how am I supposed to do this during the year? Should I buy now, or should I hold onto cash and wait for a better opportunity?

Two strategies

One way to invest in the stock market is to try to find out when stocks are at their lowest prices and then buy them. This includes working when the market will not go down.

The problem with this approach is that it is difficult. Knowing that the price is at the lowest level is just easy to find. In real time, it is difficult, and some say impossible.

An alternative approach is simply to buy frequently. In this way, the investor gets the average price of the market over time and if it rises – which it usually does – the investor makes money.

This avoids the problem of trying to work when stocks are at their lowest. But including buying stocks when they are clearly in bubble territory and good investment returns are impossible.

With my Stocks and Shares ISA, I don’t follow that approach. By using a different strategy, I hope to avoid the problem.

Intrinsic value

Instead of trying to work out when the shares are as low as they are going to be, my plan is to invest when I believe the prices are below what the shares are worth. If I can do this, it avoids the problem of both approaches.

By focusing on what the investment is worth – its intrinsic value – I don’t need to know whether the price will be higher or lower tomorrow. I just need to know what it is below what I think it’s worth now.

I also don’t have to buy it myself when the price is so high. Staying in an investment where the stock is trading less than what I think should stop buying when the price is very clear.

This is a strategy billionaire investor Warren Buffett has used to great effect over the years. So if it’s so successful, what’s the downside – in other words, why isn’t everyone doing it?

The obvious reason is that figuring out what an investment is worth is not easy. Buffett’s success is the result of his unusual skill as an approach to investing in stocks.

I’m not suggesting I’ll get Buffett-like returns in my Stocks and Shares ISA. But there are things I can do to give myself a better chance with this approach.

Invest £20,000

The best thing is to stay in predictable company. By definition, this makes it easier for me to avoid overpaying for stocks when they are worth more than they are worth.

Whether prices go up or down, if I keep buying shares below their intrinsic value, I can be happy that I got a good deal. Instead of speculating about the future, if I see an opportunity, I’m going to take it.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it become, any form of tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.