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

When it comes to investing, experts often say that it’s about timing the market, not timing the market.

And it’s true that by consistently saving money when they’re young, investors allow compounding to work in their favor.

But it’s never too late to start investing. Regardless of your age, there are many options to maximize the returns on your stocks and shares Isa.

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

We asked three experts what their best options are for your Isa, regardless of what stage of life you are at.

Long investment horizon (from 1 to 18 years)

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

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

Darius McDermott, CEO of FundCalibre, says: ‘In general, for young children, I would always recommend 100 per cent in stocks.

“Having an extended time horizon means your portfolio can withstand many market cycles and therefore a large allocation to stocks makes sense as they offer superior returns over the long term.”

Suggest small cap trusts like The Global Smaller Business Trust, which has a strong weight towards collective investments and the industry. It is currently trading at a discount of 13.6 percent.

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

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

Average investment horizon (20-40 years)

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

Ryan Hughes, chief investment officer at AJ Bell, recommends the HSBC FTSE All World Index Tracker, which tracks the global market and offers exposure to the world’s largest companies.

He says: “With a medium time horizon, the young investor may have exposure to stocks and, being relatively inexperienced, a global tracker provides an easy starting point.”

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

In 10 years it has gained 387 percent and, since its launch, has achieved an annualized return of 11.69 percent, outperforming the Dow Jones Global Technology Index.

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

“While technology is certainly a hot asset class right now, it is at the heart of almost everything we do,” Hughes said. “While the bottom line may inevitably be a little bumpy, it’s hard to take your eyes off technology for a long-term investment.”

McDermott recommends that first-time buyers saving for a deposit in their 20s and 30s also maintain a strong capital 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. Holding the cash could result in more than a decade of lost earnings.”

McDermott recommends a balanced risk fund with a medium-term horizon, such as Balanced Multi-Asset BNY Mellon either Jupiter Merlin Balanced Wallet.

“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 consider a buy-and-hold global stock fund, such as Lazard Global Stock Franchise.

“The fund looks very different from its peers, with no style biases and a concentrated portfolio,” says McDermott. “Look for strong industry leaders with natural monopolies, cost leadership, strong brands, intellectual property or high barriers to competition.”

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

Bond prices are traditionally considered to have an inverse relationship with the stock market. Investment theory says this means they are better equipped to protect their investments in the event of a market crash. It is worth noting that this is not guaranteed to always be the case.

McDermott recommends Baillie Gifford Strategic Link and Nomura’s global dynamics as good starting points.

Short investment horizon (40 years-retirement)

As retirement approaches, preserving income and capital becomes an investor’s primary concern.

Hughes recommends Personal Property Trust for those with a more established portfolio due to its clear mandate to try to preserve capital first and then grow it. Your portfolio includes cash, bonds, stocks and gold.

In five years, its net asset value has grown by 30.3 percent, while its share price has increased by 27.3 percent.

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

Sam Benstead, collective specialist at Interactive Investor, recommends Artemis Income ‘who actively chooses UK stocks that have high dividend yields, but is also happy to own lower yielding stocks that have excellent businesses and strong growth prospects.’

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

For those well into retirement, McDermott says “it makes sense to have a large allocation to high-yield 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.”