Investors looking to put this year’s Isa allowance into the stock market are facing very choppy waters.
Those who have not used up their £20,000 allowance have until the April 5 deadline to do so.
But trying to decide where to invest has become especially fraught over the past few weeks as markets face huge volatility and the outlook changes daily.
Financial markets are reacting to US President Donald Trump’s flip-flopping over trade tariffs, and last year’s stock market darlings have tumbled while previously unloved sectors soar.
Laith Khalaf, head of investment analysis at DIY investment group AJ Bell, warns that the market may be choppy for some time, which means that building an Isa that can withstand the storms will be more important than ever.
‘Given what’s going on in the world, more cautious funds may be on the menu for those looking to fill up their Isa before the end of the year,’ he says.
Looking for solid ground: Trying to decide where to invest has become especially fraught over the past few weeks as markets face huge volatility and the outlook changes daily
But how can you do that when you don’t know what’s coming?
While no one can produce an entirely bombproof Isa, following the five ‘Ds’ below should give you the best chance.
1. Diversification
Buying investments across a range of geographies, sectors and strategies means that you are not overly reliant on any one.
All investments do not tend to move in tandem, so by holding a range you are likely to have some that are performing well while others are falling in value, allowing you a buffer zone.
Recent stock market performance has neatly proved the importance of diversifying.
Last year, US tech companies were growing in value at record speed to such an extent that the biggest seven made up more than a third of the value of the US stock market.
However, in 2025, they have fallen back down to earth and shares in European defence companies are now thriving.
Those who held both investments would have had much less of a bumpy rollercoaster ride than those that held just one or the other.
Tom Stevenson, investment director at asset manager Fidelity, says that a diversified portfolio across various asset classes offers greater stability.
He has produced figures comparing the performance of a £20,000 portfolio split across 15 different asset classes with one holding a single type of asset over 20 years.
The diverse portfolio produced a higher return than nine out of 15 asset classes, protecting investors against putting their eggs in one under-performing basket.
But Stevenson warns that many investors do not even realise how concentrated their investments are, particularly when it comes to exposure to large US tech companies, and urges them to take steps to address this.
‘A diversified Isa not only mitigates risk but helps you stay resilient through market cycles, allowing you to be invested confidently in what matters most,’ he says.
To ensure you hold a range of investments, you could consider using ‘equal weight’ funds. These spread your money evenly among the companies in the index they are tracking, rather than allocating more to those with higher valuations.
Jason Hollands, managing director at DIY platform BestInvest, suggests the Xtrackers S&P 500 Equal Weight UCITS ETF, which spreads your money equally through every company in the US top 500.
You might also want to allocate some money to markets or sectors you have previously ignored, or which are not easy to access using a standard tracker fund.
Philippa Maffioli, director at Blyth-Richmond Investment Managers, suggests shares in the HICL Infrastructure trust which invests in the transport, healthcare and energy sectors.
It yields 7.5 per cent, and she says that as interest rates fall, infrastructure may become more attractive.
Shares are down 23 per cent over three years and 6.3 per cent over one, but Maffioli is positive about its outlook.
Emerging markets are another option for diversifying.
Tom Bigley, fund analyst at DIY platform Interactive Investor, suggests the Goldman Sachs India Equity Portfolio, praising manager Hiren Dasani for his experience and ability to meet companies on the ground.
The fund is up 24 per cent over three years and down 1.2 per cent over one.
2. Drip Feeding
While you’ll want to put as much of your £20,000 annual allowance as you can into your Isa before the end of the tax year, you might not want to invest it all at once in these volatile times.
‘Drip-feeding investments monthly can help to smooth out bumps in the market,’ says Camilla Esmund at Interactive Investor. ‘This is because you’re not putting all your eggs in one basket at a single point in the year when markets may be high or low.
‘Drip feeding investments monthly can be especially effective for new or nervous investors – especially during times of heightened market volatility or uncertainty.’
You can put money you are not yet ready to invest in a cash Isa and transfer it over into a stocks and shares version when you feel ready.
Alternatively, you could consider using money market funds in the short-term.
These funds work a little like cash savings, as they invest in very short-term debt and safe government bonds to provide a return.
Over the long-term they are likely to under-perform stocks and shares but can be a good way to get a little revenue while you’re waiting to invest in riskier assets such as stocks and shares. Khalaf, at AJ Bell, suggests the Blackrock ICS Sterling Liquidity Premier fund, which offered a return of 5.3 per cent last year as one short-term solution.
There are other money market options operated by Vanguard and Royal London that will also provide a low-risk home for cash.
Piling on the pounds: Stocks that pay dividends can help to ensure that your money grows over time
3. Defensives
Some funds are designed to preserve your money rather than grow it and can be a good choice in more volatile times.
These include multi-asset funds that include shares, bonds, cash and other assets.
These defensive funds include Personal Assets Trust, which currently has more than 10 per cent of its portfolio in gold bullion as this tends to do well in volatile times.
Additionally, more than half of its holdings are in US and UK government bonds or those issued by very stable companies.
Saftar Sarwar, chief investment officer at investment management firm Binary Capital, says that the fund is a ‘compelling investment’.
He adds: ‘The trust aims to protect its shareholders against inflation and market risk and has consistently delivered steady returns in pretty much all investment and economic scenarios.’
Other funds with a similar mandate include Rathbone Total Return and Ruffer Investment Trust, though as Khalaf at AJ Bell warns, all can fall as well as rise. ‘They still have market exposure,’ he says.
For those who really want to lean into the current global volatility, a new European defence exchange traded fund launched last week to track the performance of European companies involved in the defence industry.
The WisdomTree Europe Defence UCITS ETF (WDEF) seeks to exclude companies that are involved in controversial weapons banned by international law, such as cluster munitions, anti-personnel landmines, and biological and chemical weapons, as well as companies that violate the UNGC (United Nations Global Compact) standards.
4. Dividends
Stocks that pay dividends – which are regular cash injections into your portfolio several times a year – can help to ensure that your money grows over time, even when the value of underlying shares rise and fall.
Making the most of dividend payouts is vital whether you choose a tracker fund, a fund focused on income stocks or a bond fund.
The FTSE 100 is currently yielding over 3 per cent, so a simple fund that tracks this will give you dividends to reinvest as well as hoped-for capital growth over time.
The Vanguard FTSE 100 tracker is one of the cheapest options for this – costing
0.06 per cent a year – and yielded 3.6 per cent last year.
To benefit from the power of dividends over time, ensure that your portfolio is set to automatically reinvest all the dividends you receive – then let time do its work.
5. Duration
As the old adage goes, it is time in the market, not timing the market that counts with investment. That’s just as true when the market is choppy as when there is smoother sailing.
That means giving your investments time to grow and riding periods of volatility as part of the experience of investment.
Khalaf, at AJ Bell, says that de-risking your portfolio entirely can cut your returns, as studies show that, over the long-term, stocks tend to outperform less risky assets.
If you move your portfolio into cash, for example, you will have no volatility. But, over time, it is likely that the value of your pot will become eroded by inflation.
The most recent edition of the Barclays Equity Gilt Study, which looks at the performance of different assets over time, showed that, with inflation taken into account, equity investment produced positive returns over ten and 20 years, but those who left their money in cash would have ended up with less than they started with.
‘Investors should be careful not to throw the baby out with the bathwater by ridding themselves of any hint of risk in their portfolio,’ Khalaf cautions.
‘Stock markets do occasionally fall sharply, it’s simply the nature of the beast.’
With these five Ds put firmly into practice, you should be ready to wait out the current storm caused by a sixth D: Donald Trump.
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