I’ve been looking at the best way to invest in a Stocks and Shares ISA. Is it better to invest as much as possible up front, wait until the end of the year, or buy shares steadily each month?
Sarah Coles, the Head of Personal Finance at Hargreaves Lansdown, has been looking into this and found some results that might be surprising. And I’m using these to shape my strategy this year.
Move fast
According to Coles, investing as much as possible early generally produces the best results. The next best strategy is buying shares regularly throughout the year, followed by waiting until the end.
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Investing £20,000 in a fund tracking a global stock index at the start of each year for the last decade would have generated a portfolio worth over £360,500. That’s a strong return.
Investing steadily through the year would have generated £343,500 and waiting until later would have produced £322,500. Over the last 10 years, buying shares early has been the best strategy.
There have been years when buying at the earliest opportunity hasn’t been the best. But as Coles points out, it’s not an accident that it’s worked more often than not.
Dividends and growth
One of the benefits of investing earlier is that it means there’s more scope for earning dividends. Take Unilever as an example – the company distributed £1.49 per share to its owners.
Put simply, if I had bought the stock a year ago, I’d have received that passive income and if I’d waited until now, then I wouldn’t have. And this is true of a number of shares, not just Unilever.
Even with companies that don’t pay a dividend, there’s still a benefit to buying early. One of the best examples is Rolls-Royce , which suspended its dividend in 2020 during the Covid-19 pandemic.
The company’s free cash flow has grown and its balance sheet has strengthened. And its share price has responded accordingly, which I’d have missed if I’d waited until now to buy the stock.
What are the best stocks to buy?
While there are no guarantees, I think Sarah Coles makes a compelling case for investing early in the financial year. So the next question is which stocks I should be looking to buy right now.
Top of my list is FTSE 100 distribution company Bunzl (LSE:BNZL). The stock is down 7% this year after a disappointing trading update, but I think there’s a long-term buying opportunity.
The firm has some obvious advantages – notably its size and scale – that allow it to source products quicker, cheaper, and more reliably than its rivals. But its value to customers doesn’t end there.
Bunzl’s decentralised model means it can add value for its customers by providing a highly customised service. So it combines the benefits of a global scale with the advantages of a smaller operation.
Time to buy
As a business that looks to grow by buying other businesses, Bunzl has some risks that other stocks don’t. One of the main dangers is the possibility of acquisition opportunities drying up.
Last year, though, the company made 19 acquisitions and management is positive looking ahead. So I’m looking to add the stock to my portfolio and I think the time to do that is as soon as possible.
