How I’d invest £20,000 in an ISA and aim for dividend income for life

Rightly or wrongly, I’m optimistic about the prospects for businesses and the stock market. And I haven’t felt as bullish for years. So, I’m keen to invest in stocks and shares to harvest dividend income for life.

A challenging year for investors

Last year was challenging for investors. Many shares plunged, such as cyclicals, defensives, speculative businesses and any other type of stock I can think off. And it was hard to avoid the downward drag on the capital value of a diversified portfolio. Therefore, I offer a hat tip to any investor who came through 2022 with a decent gain.

Indeed, what started as something of a ‘stealth’ correction for shares gained traction to become a full-blown rout in many cases. But those watching the FTSE 100 index may not have noticed very much because it held up pretty well. However, it was propped up in part by its large weighting in energy stocks that benefitted from higher commodity prices.

And now, as the market turns bullish again, the Footsie is tearing higher. Indeed, my tracker investment following the index has been a source of stability for my portfolio. And I originally justified the investment by considering the FTSE 100 a decent dividend payer. Right now, it’s yielding just under 4%.

I’ve been pleased with the performance of my Footsie investment. And if investing £20,000 in an ISA now to earn dividend income, I’d put some of the money into a FTSE 100 tracker. 

Diversifying between defensive shares

But that’s not the only investment I’d make. To me, one of the best times to begin investing in stocks and shares is just as the market is coming out of a bear phase. Such as right now. You see, bear markets, corrections and set-backs can reset businesses and stocks. Excessive valuations might be purged from the market by such events. And it can become easier to find decent businesses with fair valuations.

But I’d focus on companies with defensive operations to support my dividend-led investments. It’s true that cyclical outfits can deliver big yields at times. But those dividend payments can be volatile over the long haul. They may even stop all together for extended periods. So, my main focus is on firms operating in sectors that tend to be more resilient during general economic downturns.

For example, my watch list contains names such as J SainsburyImperial BrandsNational GridGSKUnilever and others. I’d research defensive businesses like those and aim to add them to my portfolio. But only if satisfied with the fundamentals of each business including its potential to pay a progressive (rising) shareholder dividend.

However, even though I’d choose defensive stocks and research them carefully, there’s no guarantee of a positive long term investment outcome. All businesses can run into operational challenges from time to time. And all stocks come with risks as well as positive potential.

Nevertheless, I’ve been investing lately myself. And I believe it’s a good time to put to work £20,000 in a Stocks and Shares ISA.

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