Investing in your 20s: what I’m putting in my ISA this year

When I opened my first investment ISA a few years ago, my dad was on hand to provide some tips. Find a big, mainstream fund that offers broad exposure to the global economy. Reinvest the dividends. When you find yourself with some spare cash, top up the holding. The rest of the time, just forget about it - don’t bother trying to chase the market.

I took his advice, and it has served me well. My Fidelity Index World Fund has risen by almost a quarter since I made my first tentative investment. Very sadly, my dad died in 2022 - and something strange has happened to my trusty tracker since then.

Far from offering broad exposure to the global economy, it has become increasingly dominated by a handful of American technology firms. The 10 biggest stocks now represent over a third of the US market, the highest level of concentration the world has seen since 1930.

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I have also begun to question the logic of passive investing. As more and more money floods into trackers, surely these funds will start to exceed their brief? They are weighted by market cap, which means they invest most heavily in stocks that have already gone up. As such, they bolster existing winners.

I was fretting about this in January when I came across Terry Smith’s annual letter to shareholders. His fund, Fundsmith Equity, claims to hold “high quality, resilient, global growth companies that are good value”. It has a small portfolio of just 29 stocks.

Most of the Magnificent Seven don’t make the cut - and their absence has been keenly felt. Fundsmith grew by less than 1% in 2025, its fifth consecutive year of underperformance.

And yet, in seeking to explain yet another disappointing year, Smith pinpointed my concerns about AI and passive funds - and articulated them far better than me. The letter is well worth a read.

Towards the end of his January missive, Smith considered whether to shake up his investment approach.

“We could: 1. Start buying stocks in all the large companies which dominate the indices, and/or 2. Become momentum investors who buy shares which are performing strongly irrespective of their fundamental merits.”

Unsurprisingly, he rejected both options and stuck to his guns: to buy good companies and hold them for a long time. “Good” means a few things here, including the ability to deliver consistently high returns on capital, to achieve wide margins, to turn profits into cash, and to grow that cash flow. Many of these are old companies, with the average year of foundation sitting at 1919.

According to Smith, the portfolio consists of companies that are “fundamentally a lot better than the average of those in the S&P 500”.

There are plenty of other funds out there that focus on quality stocks. In Fidelity’s Select 50, for example, BNY Mellon Long-Term Global Equity Fund has a quality bias, prioritising reliable cash flows, strong brands and pricing power. Meanwhile, Rathbone Global Opportunities is packed with fast growing names with “star quality”. 

I’m tempted by both. However, no one has done more to popularise the idea of quality investing than Fundsmith, so it feels like an appropriate place to start. Plus, if I’m shaking things up, I might as well commit: the fund is very high conviction with a portfolio of just 29 stocks. This might be too adventurous for some investors.

Ultimately, Fundsmith flies in the face of everything I’ve prioritised in my ISA so far: broad exposure, minimum stress, low fees. And yet its strategy appeals to me, particularly as I’ve learnt more about stock picking via my day job. It might not yield results overnight, but that’s ok. I’m only 29 and I have a decent cash buffer, meaning I can afford to wait.

I won’t be ditching my Fidelity Index World Fund any time soon. But Fundsmith Equity could prove a useful diversifier if the Big Tech narrative starts to unravel.

When I was researching this article, I stumbled across an email from January 2022 with Smith’s annual letter to shareholders attached. “You should read this,” the email said. “It sets out so clearly his philosophy, which makes so much sense to me.”

Fingers crossed my dad was onto something.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. The Fundsmith Equity Fund and Fidelity Index World Fund invest in overseas markets, so the value of investments can be affected by changes in currency exchange rates. Before investing, please read the relevant key information document which contains important information about each fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.