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Investing FTSE shares in a Stocks and Shares ISA can be a smart financial decision. Unlike a Cash ISA, it allows savers to put up to £20,000 a year into investments, shielding any capital gains or dividends from tax. That means more of the money stays in the account — and compounds 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.
But picking individual shares can be daunting, especially for beginners. In my early investing days, I made the classic mistake of chasing flashy growth stories that fizzled out, or ultra-high yields that later proved unsustainable.
Through plenty of trial and error (and a few painful lessons), I’ve learned the best approach for new ISA investors is to focus on quality: large, diversified companies with reliable income and the financial strength to weather rough patches.
Here are two FTSE 100 shares I think are worth considering based on the above criteria.
Diageo: global brands, steady income
Diageo (LSE: DGE) might not sound as exciting as a hyped tech stock, but for ISA investors seeking long-term compounding, it’s hard to beat. The company owns some of the world’s most recognisable drink brands, from Guinness to Johnnie Walker and Smirnoff. This gives it enormous pricing power and geographic diversity — it gets over 40% of sales in North America and is growing rapidly in emerging markets.
Right now, the shares yield around 2.8%, with the dividend well covered by earnings at a payout ratio near 50%. Dividends have also grown steadily for over two decades, rising by roughly 5% a year, on average. That sort of consistency is golden for a long-term ISA.
Some investors may be concerned about the recent weak price action, which is a valid concern. This is largely due to waning consumer demand combined with currency exchange losses. It may be a short-term issue but there’s always a risk it drags on.
Still, for investors willing to consider it despite short-term wobbles, Diageo’s powerful brands and disciplined cost-cutting efforts could support healthy returns for many years.
National Grid: defensive income from critical infrastructure
Another FTSE share worth further research for inclusion in an ISA is National Grid (LSE: NG.). The company owns and operates electricity and gas networks across the UK and US — assets that are essential to keeping the lights on. This means revenues are fairly predictable and often inflation-linked, providing a cushion against economic downturns.
Right now, the shares offer a dividend yield of about 4.5%, with payouts rising steadily at around 3% a year for the past decade. Recent grid upgrades means the company currently carries substantial debt but this is not unusual for a regulated utilities firm. Reassuringly, its earnings are largely protected by government frameworks that allow it to recoup costs plus a reasonable return.
There are still risks, including tighter regulatory reviews that could cap returns, or higher interest rates pushing up finance costs. But for long-term investors, National Grid’s combination of defensive cash flows and inflation protection makes it an appealing cornerstone for a Stocks and Shares ISA.
Bottom line
Starting a Stocks and Shares ISA with quality FTSE shares like this can be a smart way to build wealth patiently over time.
Both companies offer global scale, reliable dividends and proven resilience — three traits that can give beginner investors the confidence to stay invested through the inevitable market ups and downs.
