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I am already looking for investments to add to my Stocks and Shares ISA in 2022. I am searching for both income and growth investments that could earn the best return on my cash for the year ahead. 

With that in mind, here are five equities I would acquire today based on their income and growth credentials. 

Investing for income and growth 

The first company on my list is the homebuilder Bellway. I think the outlook for the UK home construction sector is incredibly encouraging as property prices rise and supply remains constrained. 

As well as this growth potential, these companies also have an excellent track record of returning cash to investors. Bellway offers a dividend yield of 4.1%, at the time of writing. 

Alongside this firm, I would also acquire building materials supplier CRH. As one of the largest building materials suppliers in Europe, the company is an excellent proxy for the construction industry. 

As the economy across the region has started to rebuild from the pandemic, the sector has bounced back quickly. The demand and price of materials has jumped as a result. This suggests that suppliers like CRH could see record profits in the year ahead. The stock also offers a dividend yield of 2.8%. 

Along the same theme, I would also add structural steelwork company Severfield to my Stocks and Shares ISA. This company is a bit riskier than the stocks outlined above, because it is smaller.

Still, I think it is another excellent proxy for the UK construction market, which is experiencing a solid pandemic recovery, supported by growing government spending. The company is projected to report earnings growth of 23% for 2022. The stock yields 4.5% at the time of writing. 

All of the three stocks above have potential, but there are a couple of risks I will also be taking into account. If the economy takes a turn for the worst next year, these businesses will suffer. The construction industry is usually the first to feel the heat in any downturn. Therefore, I will be keeping an eye on the economy going forward. 

Stocks and Shares ISA buys 

Private healthcare services company Mediclinic is projected to report net profits of £169m for 2022, up from £68m for its 2021 fiscal year. Demand for private medical services is surging, and it seems as if this stock is set to profit from this trend. That is something I would like to build exposure to in my portfolio for the year ahead. 

The healthcare sector, in general, is seeing a mini boom, thanks to the pandemic. That is why I would also add Hikma to my Stocks and Shares ISA portfolio. With its broad portfolio of generic drugs and treatments, the company is well-placed to ride the growing global demand for healthcare services. 

However, Hikma, like Mediclinic, is exposed to a couple of significant challenges. These include competition and regulatory headwinds, which could hit growth. I will be keeping these risks in mind as we advance. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

£500 is a good sum for starting off an investment portfolio of shares. And it’s even better if that initial sum is the first of many investments made over a working lifetime. And that’s why I’m investing money monthly.

Great investors such as Warren Buffett have shown us how focusing on compounding gains from investments can potentially make us wealthy.

This is what 7% annually could do for me

For example, he’s achieved gains that annualise out at 20% a year since 1965. But I admit, keeping up the process of compounding for that long shows awesome self-discipline. Especially while achieving a meaty annualised rate as high as 20%. He’s 91 now. But I hope to retire much sooner than that.

And Buffett said in his 2020 letter to Berkshire Hathaway investors that it’s possible to achieve decent annual returns by investing passively. He reckons America’s S&P 500 index has returned an annualised 10.2% a year over that same period since 1965.

And I could invest my initial and monthly sums into a low-cost passive index tracker fund that follows the fortunes of the S&P 500. But past performance is not a reliable guide to the future. And the index may not achieve returns as high as 10.2% in the years ahead. However, I think a strong record of performance is a positive indicator that can contribute to my analysis and help me make investment decisions.

Getting into stock investing strikes me as a good idea. For example, let’s assume I can only manage an annualised return of 7%. And after the initial £500, I invest £300 each month. Punching the figures into an online compound interest calculator shows me I’d end up with a sum worth just over £1m after 45 years.

I think that’s impressive, considering the amounts invested are relatively small. But it gets better. After those 45 years, the grand total invested would be £162,500 — all the rest making up the £1m comes from those 7% annualised gains. And it all arises because of the way compounding works. Gains built on gains roll up like a big snowball and the end result can be spectacular over time.

Pursuing higher gains from individual stocks

I’d aim to increase my monthly contributions as my income rises over the years. And that way, the final spending power of my investment pot will likely keep up with the eroding effects of general price inflation.

But I’d do something else as well. In an effort to increase the value of the end sum, I’d aim for higher annualised returns by investing in individual stocks and shares. Of course, it takes more research and monitoring effort than simple index-tracker investing. But that’s how Buffett achieved his higher gains.

And small changes in the rate of annual return can compound up to a big change in the end sum. For example, with the same sums invested as described above, if the annualised return increased to 10% instead of 7%, the end sum after 45 years would be around £2.7m. That’s almost three times higher for just 3% more each year!

However, nothing is certain or guaranteed in the world of stock investing. Nevertheless, to me, the potential gains are worth the risks of aiming to pick my own stocks.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Retailer JD Sports Fashion (LSE:JD) has been an investor favourite in recent years. Organic growth and acquisitions have enabled the company to expand quickly. Over the past year, the JD Sports share price is up almost 18%. However, it has shed 14% over the past four weeks. I think there are a few reasons for this that I need to be aware of, especially if I’m considering buying now.

The final battle with the CMA?

First up is the battle with the Competition and Markets Authority (CMA) over the acquisition of Footlocker. The deal was first announced back in March 2019, but it has been investigated ever since. Concern stems around whether the deal would be negative for Footlocker customers due to JD Sports also being a large footwear retailer. 

In November, the final ruling came through that JD Sports would have to sell the business. Importantly, the deadline to appeal this decision has recently passed. Therefore, although JD Sports disagreed with the decision by the CMA, it appears that it won’t be pursuing the legal battle further.

This is one reason why the JD Sports share price has fallen. The added benefit of having Footlocker under the brand umbrella would have been substantial. Now, those gains are lost and Footlocker becomes direct competition for JD Sports too.

Worries around trading restrictions

The second reason why I think the shares are down is due to the Omicron variant. Concerns around this variant have shot up over the past few weeks. Restrictions have been tightened here in the UK, with many thinking that more are coming. This will hurt the company if there’s lower footfall on the streets, or if stores have to close. 

Even though the business does have a good online presence, it still operates 400 physical stores in the UK and Ireland. Clearly, there will be some negative impact on revenue that could be potentially lost from these stores. 

At the moment, it’s impossible to say how much could be lost here. Yet I think that investors are pricing in some concerns via the lower share price of the past month.

Monitoring the JD Sports share price

The final point I’d note is that the business is performing well financially at the moment. My colleague Rupert Hargreaves wrote in more detail about the strong H1 trading results. Along with revenue and profits swelling, the company has a strong net cash position of just under £1bn. 

Therefore, I do think that the recent slump in the share price could be somewhat overdone. Granted, the results are in the past. But I think that concerns around the CMA and Omicron aren’t the end of the world for JD Sports by any means. With this in mind, I’m putting the stock on my watchlist, to consider buying some shares.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. 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.

In a challenging year, some FTSE 350 shares are well down. One that has caught my eye – and stands out from the usual suspects like airlines and pub operators – was spread-betting group CMC Markets (LSE: CMCX). The share price of this FTSE 350 group is down 40% this year. To me though, the sell-off in the shares seems very overdone.

What went wrong?

The shares have been among the heaviest fallers this year due primarily to profit warnings, because 2020 was such a bumper year. Spread-betters tend to do well in volatile markets, and 2020 was understandably tumultuous. The erratic behaviour of the market drove more trades on CMC Markets’ platforms. That made growing against those high numbers from 2020 more challenging this year.

For example, the shares fell 27% as it issued a profit warning in September. “Subdued” trading in July and August resulted in less cash coming in from both new and existing customers. As a consequence, he group lowered its earnings forecast, not something investors like to see.

It did this at a time when many other shares were recovering as 2021 was, for many businesses, a more normal year than 2020. In short, CMC was punished this year for being a lockdown winner. 2021 was instead a year for pandemic recovery shares.  

Why this FTSE 350 share could be a winner again

However, I’m more interested in the future. With the shares now well down on the level at which they started 2021, I think CMC shares are bargains. They trade on a forward P/E of just 10.

The shares provide a high level of income as well, which I think partially offsets the risks that come with owning this potentially volatile stock. They yield nearly 5%.

As essentially a platform-based business CMC has high margins and returns on capital employed. Costs are relatively fixed so a higher number of customer bets feeds directly through to greater profits. In good times, it’s a great business model.

Another major positive for me is that the founder, Lord Peter Cruddas, is still involved with the business and is a major shareholder. So management is incentivised to keep shareholders front of mind and have aligned interests. Sadly, this is not always the case at listed companies.

Lastly, one last reason for me to invest is that CMC is evolving in a way that could add value. It is exploring whether to split itself into a retail operation and a spread-betting one. A move that analysts seem to back. It’s also launching a new UK investment platform in 2022.

2021 highlighted the risks of investing in spread-betters like CMC. Earnings can be lumpy and are affected by what is happening in the stock market, a factor beyond management’s control.

That said, I’ve just very recently bought shares in the firm so I have skin in the game and expect to see them bounce back in 2022.

Andy Ross owns shares in CMC Markets. The Motley Fool UK has no position in any of the shares mentioned. 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.

One of the easiest ways to save money is to reduce spending. And one of the easiest ways to reduce spending is to reduce purchases of goods and services I can create for a lower cost at home.

Coffee is the perfect example. By having coffee at home rather than in a coffee shop, I estimate that I can save as much as £11.25 a week. Ultimately, I could use this money to create a passive income from a portfolio of stocks and shares.

Passive income from coffee spending

Coffee at my local shop costs around £2.50 a pop. I calculate I can replicate the same product at home for around 25p. That is a saving of £2.25 a day, or just under £11.25 a week, £48.75 a month, or £585 a year. 

A figure of £585 is not enough to generate a passive income straight away. However, over the space of a couple of years, it could help me build a diverse portfolio of equities, which have the potential to generate a regular income. 

There are plenty of companies on the market with tremendous potential as income investments. Homebuilder Persimmon currently offers a dividend yield of around 8%, and the mining giant Rio Tinto yields approximately 10% (an average for the next two years, based on current forecasts). 

A sum of £585 invested across these two companies would potentially generate an annual income of just under £53 per annum. After two years of saving, and assuming I reinvest all of my income from the portfolio, I would have a portfolio worth £1,276.69, generating £54.80 per annum in dividends. 

Future growth 

When I have put the foundations of my passive income strategy in place using the above approach, I can start focusing on growing my balance. There are a couple of techniques I can use to meet this aim. 

Of course, I can save more. This is the easiest way to increase my savings and investment pot. If I can put away an extra £10 a week, or £520 a year, my savings pot would be worth £2,313.66 after two years. That would give me the potential to earn £103 a year in passive income, assuming I continue to invest in the corporations outlined above. 

The other strategy is to invest more in growth stocks rather than income plays. Using this approach, I might be able to earn a higher return on my money above 9%, although it is far from guaranteed. There is even a chance I could end up losing money, which is not something I really want to do. 

On the topic of risks, when investing in dividend stocks, there will always be a risk the companies may cut their distributions to investors. In this scenario, I may have to re-evaluate my investment strategy. 

Still, I believe the passive income strategies outlined above can help me generate a recurring income stream with stocks and shares even when taking this challenge into account. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The Bank of England’s recent surprise decision to increase UK interest rates to 0.25% has sent reverberations around the financial sector. The first hike in three years is fantastic news for lenders such as Lloyds, Barclays, NatWest and Virgin Money. 

UK interest rates start to rise

At its core, a bank’s business model is relatively simple. It takes deposits from consumers and then uses them to fund other customers’ loans. As long as the bank receives more interest from borrowers than it is paying out to depositors, it should be profitable. That is after taking into account the costs of running the business and charges associated with loan defaults. 

In practice, that business model is a bit more complicated. In recent years, as interest rates have remained stubbornly low, lenders have been forced to seek out different ways to increase the return on their shareholders’ capital. 

Barclays has expanded its investment banking business. Lloyds has launched a wealth management division and is getting into buy-to-let ownership. Meanwhile, Virgin Money is concentrating on higher-margin credit card lending to increase its interest income. 

Ultimately, higher interest rates will allow these lenders to increase the cost of credit to borrowers. It should also reduce competition in the industry. Since the financial crisis, the banking sector has been awash with liquidity. Lenders have been fighting each other for market share, which has pushed down the cost of lending across the industry.

With interest rates pinned at 0.1%, well-capitalised lenders had little incentive to increase borrowing costs as it would have hit market share. The higher base rate may take some air out of the industry’s rush to grab new customers. 

Profits set to rise at UK banks

All in all, higher interest rates suggest profits will start to rise at UK banks over the next 12 months. Analysts are expecting further rate hikes next year, indicating this could be just the start of a series of interest rate increases.

If rates do rise further, then Lloyds, Barclays, NatWest and Virgin Money could report substantial increases in profitability over the next year.

This could be the start of a new period of affluence for these lenders as the financial world slowly starts to move away from quantitative easing policies that have been in place since 2009. 

Unfortunately, the interest rate increase benefits will not show through in these lenders’ profits immediately. It will take some time for the hike to work its way through to their bottom lines. Many large financial products such as mortgages are sold on multi-year fixed-rate deals. These are immune to rising interest rates. 

This means there is no guarantee profits will receive a boost. If the BoE has to cut rates again, the benefits could disappear overnight. 

Still, despite this risk, I would be happy to buy Lloyds, Barclays, NatWest and Virgin Money as recovery plays for my portfolio in the year ahead. The double tailwind of higher interest rates and improved economic growth could help these companies outperform next year. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.

Warren Buffett is widely considered to be one of the best investors of all time. He did not get this position by accident. Over the past seven decades, he has built a vast fortune by following a set of rules, which he continues to use today.

Any investor can follow these rules to improve their investment process. Indeed, I follow some of Buffett’s practices to help me choose investments and reduce the risk of losing money from my choices.

As such, here are the rules I would use from the ‘Oracle of Omaha’ to invest a lump sum of £5,000 today. 

Buffett’s rules for success

The billionaire’s first rule of investing is to avoid losing money. This is easier said than done. Even Buffett has bought investments that ended up costing him. 

But this advice does not mean we should avoid selling stocks at a loss. Instead, Buffett is trying to get across how important it is to avoid corporations at risk of bankruptcy. These include speculative investments such as early-stage mining or oil exploration companies. Early-stage technology enterprises could also incur losses on investors if they struggle to produce a commercial product. 

With this advice in mind, I would avoid investing my lump sum of £5,000 in any companies that may have a chance of running out of cash. This includes small-cap miners, speculative penny stocks and highly-indebted businesses. 

When looking for an investment, one of the first questions Buffett asks himself is whether or not he can understand the enterprise. This is something I will follow as well. Some companies are challenging to understand. That includes how they make money and how they will generate returns for investors.

Even if these enterprises are highly sought after investments, I will avoid them because there is no better way to lose money than buying something I do not understand. This approach has helped me avoid several disasters in the past. These companies were market darlings, but their complex business models were designed to obscure fraudulent activity. 

Invest for the long term

The third and final Buffett rule I would follow to invest a lump sum of £5,000 today is to focus on the long term. The Oracle of Omaha says investors should only ever consider a stock if they plan to hold it for the next 10 years.

This mentality forces me to complete extra work to understand a company and become entirely comfortable holding it in my portfolio. If I know I cannot sell for the next decade, I want to be sure I bought the right stock.

When I have completed enough research to understand the company inside and out, it is easier to hold the investment. Especially through the peaks and troughs of the market cycle.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

I don’t want to work into my late 60s. But my State Pension won’t be available to draw until I’m 67. And the goalposts have been moving — further away. My father started claiming his at 65. And some of those younger than me will have to wait longer still until they’re eligible.

The reason for the slippage is the number of pension-age people is swelling. Many of us are living longer these days. And, somehow, consecutive UK governments need to make policies that balance the books.

I’m glad they’ve decided to require more working years from us rather than pushing taxes ever higher. And that’s because it leaves me with spare money to invest. Of course, there are risks to making my own investment decisions. But there’s also the opportunity to aim for a higher return on my money. And that could help me aim for an earlier retirement funded from my own investment pot.

My quest for early retirement

One of the main drivers of my plan to build a personal retirement fund is the habit of spending less than I earn. But instead of putting the leftover money into cash savings accounts every month, I’m putting it in tax-sheltered stocks and share investment accounts.

I’ve got a Self-Invested Personal Pension (SIPP) and a Stocks and Shares ISA. But it’s also a good idea to use company and personal pension plans. And I’ve put money in those in the past. One of the main advantages of company pensions, for example, is employers will often contribute money on top of what the employee puts in — and free money isn’t to be sniffed at.

However, with my SIPP and ISA, I’m in complete control of the investments. I select them, buy them, hold them, sell them, and monitor them. And that suits me fine. The process of investing can be fun and absorbing, so that helps.

Active, dynamic entities

My preference is stocks and shares all the way. And that’s because the total returns from shares, in general, have outperformed most other asset classes over the past decades.

Of course, there’s no certainty the situation will repeat in the years ahead. And all shares carry risks for investors. But to me, the businesses’ underlying stocks are active, dynamic entities that have the potential to adapt well to changing economic circumstances.

And other asset classes can’t do that. For example, commodities such as gold, silver, copper don’t do much. They just go up and down in price according to the forces of supply, demand and investor speculation. And it’s a similar story with cryptocurrencies such as Bitcoin. Of course, if they go up they can yield rich rewards.

Meanwhile, owning property can be lucrative but also problematic if ongoing maintenance costs exceed rental and capital gains. And I’d describe bonds, cash accounts, fine wine, art, antiques and other such assets as passive and inactive.

I like shares though because businesses can save their costs, increase their profits, expand, reinvest cash flow into more assets that can then earn more profits, and so on. Overall, I see stocks and shares as the asset class that will be most likely to give me an investment edge in my quest for earlier retirement.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

They say the first step is always the hardest. Or is it? Today, I’m going to explain how anyone can build a passive income stream by setting aside just £1 a day. 

What? Just £1?!

The idea of just investing £1 a day sounds a bit ludicrous, so let me explain. The actual amount put aside every day doesn’t really matter, at least initially. It could be £2, or £5, or £10, or whatever. Obviously, £10 a day is better than £1, but that may not be doable for a lot of people.

The point is simply to make the process as free of friction as possible by keeping the amount saved small enough to not seem daunting. This increases the likelihood of it becoming a habit. And developing a good savings habit is fundamental to building wealth over the long term.

Now, investing £1 a day isn’t practical. Every three months (£91), every six months (£183) or every year (£365) makes more sense. Regardless of how regularly I buy, I’d be sure to pick a stockbroker that charges low/zero commission when I use their regular investing service. This simply invests my money automatically on a set day rather than a day of my choosing. 

Next steps

The question that now presents itself is what to buy with this money. For passive income, I’d target dividend-paying stocks. These are companies that choose to distribute a proportion of profits to investors on a quarterly, or bi-annual, basis. Positively, there’s no shortage of such businesses on the London market. 

The only issue with the above approach is that dividends are never guaranteed. So throwing all my accumulated cash into just one stock is risky.

Clearly, one solution to this would be to spread my money around a number of companies. Since we’re only starting to invest using a small amount of money, I’d probably buy a cheap exchange-traded fund that tracks an index such as the FTSE 100. Here, I’d get access to a big group of stocks in one click! Buying individual stocks is something to do further down the line.

Out of interest, the FTSE 100 yields 3.5% right now. That’s an awful lot more than the 0.67% I’d get from a Cash ISA. In fact, holding that £365 saved every year as cash is just about the worst thing I can do.

Due to the paltry amount of interest I’d be getting, it would actually lose value over time, due to inflation. Instead, I’d save my £365 into a Stocks and Shares ISA. Doing so also ensures I’ll pay no tax on the passive income I receive.

Have a little patience

I think the hardest part of growing a passive income stream is being patient. After all, investing that £365 in a FTSE 100 tracker wouldn’t generate much in the way of dividends from the off.

There are ways of turbocharging this amount, such as increasing the amount of cash per day I save once the habit has formed. I could go from £1 per day in Year One, to £2 in Year Two, to £3 in Year Three, and so on. 

Since there’s no rule to say an investor must spend the money received, I’d make a point of always reinvesting it into buying more shares to benefit from compounding. By the time I really want to use that income, I should have a far larger amount to draw on.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.