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If I’m building a stocks and shares ISA portfolio from scratch, I’ll narrow my search by FTSE 100. The UK blue-chip index contains a broad range of stocks that provide the capital growth and dividends I need to build my wealth over time.
The FTSE 100 fell out of fashion during the bull market, when investors preferred tech stocks wiz US, but it is showing potential in this difficult year. Relative success has increased in the energy and mining sectors. Banking, insurance, utilities and healthcare sectors have also shown value during the crisis.
My Stocks and Shares ISA Dream Group
I build my dream portfolio on a bed of strong income stocks. As inflation rises, regular dividends help protect the value of my startup portfolio in real terms. Investing in stocks lowers the risk balance and can save you from an early and disastrous failure.
First, I buy something very sturdy, like a utility. National grid. This stock is not completely without risk (not at all). Revenues are controlled and could be squeezed as the frenzy towards energy privatization continues. However, it has provided solid income over the years, and today yields 4.75%.
Then I add stocks from another strong dividend sector, in this case, financial services. Insurer Legal and general group It has the dual attraction of low valuation (7.67 times earnings) and high earnings (6.95%). It also recently posted an 8% increase in net profit to £1.1bn, boosted by higher interest rates and a growing annuity portfolio.
L&G’s share price has looked cheap over the years so I don’t expect a sudden rebound. However, the lower valuation may provide some downside protection. I will complete it by investing heavily in spirits Diageo. This company confirmed its reputation as a strong defensive stock, showing a 21% increase in full-year sales to £15.5bn.
Diageo’s stock isn’t cheap, trading at 25 times earnings, but it’s never going to be. The dividend of 1.99% seems low, but it is. The company’s dividend policy is progressive and the stock has delivered solid returns through thick and thin.
I love high quality products at low prices.
It’s hard to argue against the energy sector this year and my start-from-scratch portfolio includes oil giants Bp. The yield is lower than it was at 3.5%, but the valuation looks promising at 13.94 times earnings.
BP has a tough job in making the transition to renewables. But as we have seen recently, the age of oil is not dead. By investing in the banking sector, I had chosen and completed the foundation for my dream portfolio. Lloyds Banking Group.
At just 6.13 times earnings, it looks like a dirt cheap trade. The 4.27% yield is forecast to grow steadily to 5.5% next year. Like L&G, shares in Lloyds seem to be undervalued every year. I hope to catch it when the market wakes up on the last price.