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

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

And it’s true that by consistently putting money away at a young age, investors can make compounding work to their advantage.

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

While there is no one-size-fits-all approach, assessing your investment horizon can help 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’ve reached.

Long investment horizon (1-18 years)

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

However, many parents choose cash over stocks, meaning they miss out on years of compounded returns.

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

‘Having a longer time horizon means their portfolio can weather many market cycles, so a large allocation to equities makes sense as they offer superior long-term returns.’

He suggests small-cap trusts such as The global confidence of smaller companies, which has a heavy weighting towards collective investments and industrial sectors. It is currently trading at a discount of 13.6 percent.

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

Parents might also consider emerging market funds, McDermott advises Invesco global emerging markets And JPM emerging markets.

Medium investment horizon (20-40 years)

Investors in their early twenties also have a longer investment horizon and can therefore benefit from heavier investments in shares.

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

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 entry point.’

For investors in their 30s who may have put off investing, Hughes advises Global Polar Cap Technology.

In ten years, the index has posted a gain of 387 percent and an annualized return of 11.69 percent since launch, outperforming the Dow Jones Global Technology Index.

“While technology is certainly a hot asset class right now, it is at the core of almost everything we do,” says Hughes. ‘While the fund can inevitably be a bit bumpy, it’s hard to look away from technology for a long-term investment.’

McDermott recommends that first-time buyers saving for a down payment in their 20s and 30s should also maintain a strong equity allocation.

‘The average time it takes to build up that deposit now averages ten years – and as much as eighteen years if you live in London – sticking to cash could result in more than ten years of lost returns.’

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

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

Those saving for retirement could also look into a buy-and-hold global stock fund Lazard Global Equity Franchise.

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

Investors in their late 30s should also consider increasing their exposure to bonds, which look more attractive now than they will in a while.

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

McDermott recommends Baillie Gifford strategic bond And Nomura Global Dynamics as good starting points.

Short investment horizon (40 years – pension)

As retirement approaches, income and capital preservation become investors’ top concerns.

Hughes recommends Relying on personal property for those with a more established portfolio due to the clear mandate to first try to preserve capital and then grow it. The portfolio includes cash, bonds, stocks and gold.

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

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

Sam Benstead, collectives specialist at Interactive Investor, recommends this Artemis income ‘who actively chooses British shares with a high dividend yield, but also likes to own lower yielding shares that have excellent activities and strong growth prospects.’

The yield is 3.8 percent and over the past twenty years the shares have risen 390 percent, compared to 286 percent for the FTSE All Share index.

For those already retired, McDermott says: ‘It is wise to have a large allocation to high-yield bond funds, such as Man GLG High Yield Opportunities, and income-oriented multi-asset funds such as VT Momentum diversified income.

McDermott added: ‘These asset classes provide predictable income streams and help build a stable foundation for your retirement fund.’