Investing within a Stocks and Shares ISA can be a great way to build wealth. But this type of product doesn’t guarantee financial success – ultimately it’s just an investment vehicle.
Here, I’m going to share my top tip for ISA investors. This concept has improved my returns dramatically and I’m confident that it can do the same for others.
My top tip
It’s not hard to find investing tips these days. Compared to when I started investing in the early 2000s, there’s far more information available, which is great.
Some common tips one often hears are:
- Think about your goals and risk tolerance before investing.
- Diversify your portfolio to minimise risk.
- Invest on a regular basis to average into the market.
- Take a long-term view (five years or longer).
- Be greedy when others are fearful.
These are all great tips. They can all help investors have more success.
If I had to list my top tip, however, it would be this – take a global approach to investing. In other words, don’t just stick to UK shares.
Home bias
‘Home bias’ is common in the investment world. This is a phenomenon where investors stick to investments in their home country.
It’s very common here in the UK. Today, a lot of British investors tend to stick to well-known Footsie stocks like Lloyds and BP, as that’s what they’re most comfortable with.
The problem is that this approach can limit one’s returns. Unfortunately, the UK stock market is quite small, and it’s lacking in key areas such as technology.
This is reflected in the performance of the FTSE 100. Over the five-year period to the end of October, it delivered an annual return of 6%.
By contrast, America’s S&P 500 index delivered an annual return of 15.3% over that period. By allocating capital to US shares, investors could have potentially improved their returns significantly.
Big gains
When I started taking a more global approach to investing about six years ago, my returns improved dramatically.
One of the first international stocks I bought was tech giant Apple. Since I bought it, it has risen about 450%.
A few years later, I bought shares in Nvidia. Since my first purchase here, they’ve risen about 620%.
There aren’t many UK stocks that have produced these kinds of returns in recent years. So, I’m glad I adopted a more global approach to investing.
Easy access
It’s worth pointing out that if one is looking for international exposure but hesitant to buy individual stocks, tracker funds can be a good option to consider.
An example here is the Vanguard S&P 500 UCITS ETF (LSE: VUSA). This provides exposure to the S&P 500 index meaning that one gets access to 500 different US-listed companies.
Stocks in the ETF include the likes of Apple, Nvidia, and Amazon. So, there are some world-class companies in it.
And ongoing fees are very low at just 0.07%. Overall, there’s a lot to like.
Of course, like every investment, this ETF has its risks.
One is that there’s quite a lot of technology exposure. If growth in this sector slows, this ETF could underperform.
Another risk is exchange rates. If the pound strengthens against the US dollar, returns for UK investors could be eroded.
Taking a long-term view, however, I expect it to do well.
This post was originally published on Motley Fool
