Here’s how I invest my Stocks and Shares ISA in a weak economy

·3-min read
Young Caucasian man making doubtful face at camera
Image source: Getty Images

When the economy is on fire, doing well with a Stocks and Shares ISA can sometimes (not always) seem pretty easy. But in a weaker economy with a lot of shares performing poorly, looking at my ISA performance is not always such a pretty sight.

So what should I do?

Investing for the long term

A weak economy can hurt businesses in several ways.

At the general level, factors like soft consumer demand and high inflation may eat into the profitability of businesses across the board. Some do better than others, but few do really well when the economy suffers (though some, like restructuring specialists, may).

But some companies suffer more specifically. For example, consumer staples will still sell. People need to eat. But discretionary items like luxury goods can be much harder hit by consumer spending slowing down.

Does that mean that those shares do poorly when the economy is down?

Not necessarily. Sometimes expectations of weaker business performance are already priced in long before the economy slows down.

As a long-term investor, I factor that into my thinking when buying shares. Rather than fretting about the latest move in a share price, I consider the long-term investment case for a share – and whether it is reflected in the current share price.

The role of growth

I do own some consumer staple shares in my portfolio. I appreciate the relatively steady flow of dividends from firms like British American Tobacco even when the economy is sluggish.

But I also think a weak economy can be a good time to start positioning my Stocks and Shares ISA for growth in the longer term. I am doing that at the moment.

Right now, for example, many growth shares have fallen out of fashion. That has pushed their price down. But in some cases at least, I think the long-term growth prospects remain very strong.

One example from my own portfolio is digital media agency S4 Capital. Its shares have performed terribly over the past year. But the company expects double-digit annual revenue growth for years to come. There are risks. The business remains loss-making and its founder has been receiving treatment for a serious health condition.

But in the long term, I think S4’s growth prospects remain excellent. Indeed, it is only because I already have a sizeable position in the company that I am not taking advantage of the latest price fall to add even more S4 shares to my ISA.

Individual value

Whatever the wider market is doing then, my approach is largely the same.

When picking holdings for my Stocks and Shares ISA, I am trying to understand the long-term outlook for their business. If today’s price is significantly below the valuation I think that merits, I will consider buying the shares.

I may need to hold them for years, potentially trading below what I paid, before their real value hopefully shines through. But that patience waiting for rewards is exactly what long-term investing is all about!

The post Here’s how I invest my Stocks and Shares ISA in a weak economy appeared first on The Motley Fool UK.

More reading

C Ruane has positions in British American Tobacco P.l.c. and S4 Capital Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023