If I had a lump sum of £1,000 to invest today, I’d concentrate my resources on UK investing champions. By this, I mean blue-chip stocks shares and investment funds.
Indeed, investing can be risky. Times of economic turbulence can be incredibly stressful for investors. As such, investors should never put more into the market than they can afford to lose.
I keep at least six months of spending in a savings account as a backup fund. This helps me invest without having to worry about market volatility. And by targeting UK investing champions, I can increase my chances of building a large financial nest egg.
Sticking with blue-chip stocks and funds does by no means guaranteed investment success. However, I think it had can help me avoid some of the more significant risks investors may face. These include minimising the chances of being exposed to a fraudulent company and businesses that may be in a troubling financial position.
Blue-chip companies can and do sometimes collapse due to fraud and lack of funds. But with checks and balances in place, which are designed to minimise these risks, means they’re usually discovered before they become terminal. That’s not necessarily the case with smaller businesses.
UK investing champions
The kind of companies I’d acquire with a lump sum investment of £1,000 are the sorts of businesses I already own.
These include consumer goods giants Unilever and Reckitt Benckiser. I like to own shares in companies that produce products I know and use. I can think of at least several products in my home that feature in Unilever’s portfolio, including legendary brands such as Marmite. The same is true of Reckitt.
While these may not be the most exciting corporations, they produce products that billions of people worldwide use every day. Unilever estimates that 2.5bn people a day use at least one of its products.
But these qualities don’t guarantee success. Both companies face — and will continue to face — increasing competition, which means they have to stay on their toes. That’s something I’m going to keep an eye on going forward.
Nevertheless, as long as these groups continue to invest in developing their product and remain relevant with consumers, I’ll continue to own these two UK investing champions in my portfolio.
These aren’t the only businesses I’d buy with a lump sum of £1,000. Concentrating my assets in just two stocks could be an incredibly risky strategy. So I’d diversify. A great way is to buy an investment trust, such as the City of London investment trust.
This investment trust owns a portfolio of 85 stocks. That provides a high level of diversification, in my opinion. Companies such as Unilever feature alongside firms in other sectors, such as finance and healthcare. This doesn’t guarantee good returns, although it does reduce the risk that one bad investment in the portfolio will hurt the City of London’s performance.
Investment trusts may not be for everyone however. Investors need to place a great deal of confidence in managers. And if these managers don’t live up to expectations, there can be significant losses. Still, I believe it’s a solid business and an excellent way to acquire a diversified portfolio.
Meanwhile, this UK investing champion also offers a dividend yield of 5.1%.
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Rupert Hargreaves owns shares in Unilever and Reckitt Benckiser. The Motley Fool UK has recommended Unilever. 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.