Image source: Getty Images
There are several reasons why some investors believe we’re primed for the next stock market bull run. This includes the potential for lower inflation and cuts to the base interest rate over the next year.
A Stocks and Shares ISA is a great home for investments to take advantage of this. Here are a few ways I’d prepare for this potential outcome.
Tidy up the existing ISA
I’m sure I speak for many when I say that an ISA might not be the most organised collection of stocks. Given the fact that each investor gets a fresh allowance of £20k each year, the thinking is to build a portfolio over time.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Yet this can mean some stocks have been sitting there for many years. It can also mean I might have cash sitting in the ISA that are dividend proceeds, or money from selling a stock.
In order to be ready for when the next bull market kicks off, I need to get things tidied up. This can involve calculating what exposure I have to different sectors and geographies. It includes putting together my holdings such as bonds, ETF’s, trusts and everything else.
The aim here is to have a clear picture of what my current ISA holdings look like. This will then enable me to have a better idea of what I want to buy, or avoid, going forward.
Plan my cash flow
The ISA year runs April to April. That’s when the allowance resets for the following year. Now I don’t know exactly when a catalyst might spark a stock market rally. However, I can plan my cash flow to enable me to have some spare money to invest.
At a basic level, this means not using all of my allocation now. If I use all £20k by October then I don’t have any new money to use until next April. Rather, pacing myself by investing on a monthly basis can be a smart way to prevent this.
Granted, financially, I’m not going to be able to max out my allowance this year anyway. Yet even with this being the case, I want to manage my cash flow to ensure that I have some disposable income for when the time is right.
Buying now before the rally
There are risks to the view of a bull market starting soon. One major concern is stagflation. This is when inflation is sticky and doesn’t fall, but economic growth also doesn’t rise. This mix is bad news for the economy and also the stock market.
However, for investors who do believe the market is due to rally, it actually makes sense to start using the ISA now. This is because no one can perfectly time when the party is going to start. So to avoid missing out on potential gains, it’s worth considering buying some shares ahead of what could happen.
For example, growth stocks tend to outperform during this stage of a market cycle. So I’d be focusing on including these types of companies going forward.
