If I had a lump sum of £3,000 to invest today, where would I put it? I’d start by looking at UK shares, as my home market is the one I know best.
Next, I’d consider how much risk I was willing to accept. The three investments I’ve chosen today cover a broad range, from a simple fund through to a high-risk turnaround.
An auto-pilot investment
If I wanted to play it safe, I’d probably put my £3,000 into a FTSE 100 index tracker fund. This would give me exposure to the 100 largest listed companies in the UK.
Many of the big businesses behind these UK shares earn make most of their money abroad. This means that investing in the FTSE 100 would give me a decent level of exposure to the global economy.
In terms of potential gains, the UK stock market has a long-term average historic growth rate of around 8%. If that stays true in the future, then I might be able to double my money in nine years — although this certainly isn’t guaranteed.
Of course, there are some risks. The FTSE 100 has lagged the US S&P 500 index in recent years. This is because the UK index is weighted to miners and big banks and doesn’t have much exposure to fast-growing technology stocks. I’m not sure how quickly that will change.
This UK share is a big tech player
I prefer to buy individual stocks rather than index funds, so I can shape my portfolio to focus on the sectors I like most.
One UK tech stock I’ve been buying in recent months is FTSE 100 software group Sage (LSE: SGE). Although I wouldn’t put my whole portfolio into any single stock, I think this business offers a decent mix of safety and long-term growth potential.
Sage is going through a period of investment at the moment, expanding its cloud-based accounting platform and moving older customers online.
Over the medium term, I think this should result in higher profit margins and steady growth. Right now, this situation is still a work in progress. Underlying profits fell by 11% during the six months to 31 March, and the shares are flat on one year ago.
I see this as an opportunity to buy into a quality business at a reasonable price. But I could be wrong — Sage might be left behind by smaller, more nimble competitors.
Double or quits?
If I wanted some excitement with my £3k and was prepared to lose money, then one UK share I’d buy is Avation (LSE: AVAP).
This £75m company is an aircraft leasing business. As you’d imagine, it was hit hard by the pandemic. Avation’s share price is still 65% below February 2020 levels. One of the company’s larger airline customers went into administration, while others have renegotiated leases, agreeing lower rates for future years.
A lot depends on whether air travel starts to return to normal during the second half of this year. If it does, then I think Avation could make a decent recovery. In that scenario, I could imagine the AVAP share price doubling.
However, Avation’s large debt burden means that I think there’s still a chance this business could fail. If that happened, shareholders would face a total loss.
Avation is a highly speculative situation, but I see it as a potential winner.
