Starting to invest in UK shares doesn’t require a huge amount of money. Sometimes one may have a lump sum, big or small, and decide to put it to work in UK shares. If I had £1,000 to invest in UK shares right now, here is what I would do.
Risk management
If I had £1,000, I wouldn’t want it to be eaten up by brokers’ fees due to spreading it very widely. I’d try to find a competitively priced broker, but I would also focus the money on just one or two investments. That involves some risk as it means that my investment wouldn’t be very diversified. There are two ways to manage this risk.
One way involves focusing on only very well-established, blue chip names like Unilever or National Grid. Other companies with more rapid growth potential could offer more attractive returns, but would also increase my risk level. I would be keen to avoid that even at the cost of losing out on some potentially juicier returns. That is because investing just £1,000 would focus me on reducing risks to my capital.
Rather than picking individual UK shares, I could also consider investing in a fund, which invests in a wide number of companies. For example, F&C or the Scottish Mortgage Investment Trust could offer me some of the benefit of investing in the wider market even while only making one purchase. The Scottish Mortgage Investment Trust is exposed to a lot of high-growth tech names. That means it could be volatile if holdings like Tesla and Alibaba fall, although longer term, I think its exposure to a wide range of tech names would suit my risk profile better than plunging into a single tech name.
UK shares I’d buy alone
If I did decide to invest in just one or two shares rather than a broad-based fund, I would still focus on managing my risk level.
So, for example, while I like British American Tobacco and Imperial Brands, I am more comfortable holding them as part of a wider portfolio, since the future for tobacco demand is uncertain. Instead I would likely go for a company whose market I expect to keep expanding,
For example, Legal & General operates in insurance and financial services. While those are not necessarily high-growth markets, I expect that over time they will continue to grow. Legal & General’s long history and brand recognition give it some pricing power. With the current yield of around 6%, £1,000 would generate around £60 in income each year for me from these UK shares. A downturn in business could lead to the company reducing or stopping its dividend payments, of course.
I’d also consider a company like Morrison’s. Food retail is a competitive, which squeezes profit margins. However, demand for food is stable. Internet shopping could hurt supermarkets, but Morrison’s has a solid online operation. Its online sales growth last year outpaced key rivals. Meanwhile, the shares yield almost 4%. I’d be happy to put £1,000 in UK shares like Legal & General and Morrison’s today.
