If I were to start investing with a large lump sum of £20,000 today, I would buy a basket of different stocks and funds.
The reason why I would use this approach is simple. Picking stocks is hard, and I do not have as much time as I would like to choose investments.
Therefore, I would focus my efforts on a small number of single stocks while investing the rest of my money in funds.
Investing with £20k
When it comes to picking single stocks, I would focus on the companies I know best. I would also stick to blue-chip stocks. Small and medium-sized businesses can be challenging to analyse, and many lack the checks and balances that are in place at larger enterprises. This increases the risk that something will go wrong and lead to losses at the organisation.
Some of the blue-chips I would focus on are dividend champions such as United Utilities and National Grid. I reckon these income champions would be solid foundation stocks for my portfolio. Their slow and steady nature would allow me to take more risk elsewhere.
Alongside the utility stocks outlined above, I would also buy AstraZeneca. I think this company could offer a great blend of income and growth. I think the global healthcare industry will only grow as the world’s population ages. Astra should benefit from this.
Another stock I would buy is the London Stock Exchange. This company is one of Europe’s preeminent financial firms. It has a strong foothold in the capital markets in London and the data traders and investors use. As the economy expands, I reckon the demand for these services will grow as well.
Those are the single stocks I would buy for my portfolio. I would invest around £10k in these businesses to provide as much diversification as possible. Even though I think all four companies are great investments today, there will always be a risk one or more could run into trouble in the future, putting a halt on growth.
Diversification with funds
As well as the stocks outlined above, I would also buy a handful of investment funds. Two examples are Monks Trust, which has a strong record of investing in global growth stocks, and the Aberforth UK Small Companies Fund.
These funds would provide my portfolio with exposure to two key themes, global growth and smaller companies.
Smaller stocks can outperform their larger peers in the long term, but analysing these businesses requires specialist knowledge. That is why I would buy the Aberforth UK Small Companies Fund.
At the same time, I do not know where I would start analysing international growth stocks. That is why I would add Monks to my portfolio.
The risks of using this approach rather than investing directly in growth stocks are that these funds may underperform. In that case, I would be paying hefty fees for nothing. They also charge management fees, which can eat into returns.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended National Grid. 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.