How I’d invest £500 in UK shares

With £500 ready to invest in UK shares for his portfolio, Christopher Ruane picks one growth choice alongside a cash rich dividend payer.

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£500 might not be a fortune to many people. But I still think it could be a useful sum to put to work in UK shares.

Here is how I would invest £500 in UK shares for my portfolio today.

Capital preservation

Trading costs mount up and even historically successful companies can run into stormy weather.

So if I was putting £500 into the stock market today, I would apply two principles when selecting shares. First, I would try to diversify by buying at least two quite different types of company. Secondly, I would focus on well-known companies with strong balance sheets. There would still be a risk that they could turn out badly. But I would sleep easier using these basic risk management principles.

Income focus

I’d start by putting £250 into Galliford Try (LSE: GFRD).

The building company looks well-positioned to benefit from future strong demand for construction projects. With its focus on infrastructure business, I expect it to profit from economic recovery plans, which include large public works. Galliford Try also retains some exposure to the housing market. At a time of buoyant demand I see that as positive.

I like the company’s disciplined approach to bidding for work. Builders often run into trouble by tendering low prices for projects to win the work and then struggling to turn a profit. Galliford Try’s approach specifically aims to avoid this trap.

UK shares with dividend

With an interim dividend of 1.2p, the shares offer a modest yield, though hopefully a final dividend will also be announced in due course. Galliford Try plans to grow dividends in line with earnings, covering them at least. That makes it an attractive income pick for my portfolio.

Also attractive to me is the strong balance sheet. The company ended last year with a net cash position of £211m. Yet its current market cap is only £136m. That gives the company a substantial financial cushion.

However, there are risks. Even carefully costed building projects can overrun, running up losses. Future revenue potential may not be as high as expected if public spending priorities shift.

Growth pick

I would allocate my remaining £250 in a company whose growth prospects I like: JD Sports (LSE: JD).

JD’s half-year results reported £764m of net cash, albeit £200m was due to temporary factors. That is a strong balance sheet at a time when many companies are scrambling for cash.

Back of the net?

Partly that reflects the decision to suspend dividends. While JD might not be attractive right now from an income perspective, as a growth pick I continue to see potential here for my portfolio. While first-half revenue slipped 6% versus the prior year, it was still up 38% on the pre-pandemic 2019 figure.

The company’s winning formula of keen pricing on strong brands is set to keep it growing in my view. But there are risks, as the recent revenue fall showed. For example, a move away from working from home could lead to a decline in demand for leisurewear, which might hurt sales.

My next move

With £500 to invest, I would assess the fit of these two UK shares with my portfolio and investment objectives.

I would then consider splitting the money across two names and move to action by adding the choices to my holdings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

christopherruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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