If I had a lump sum of £10,000 to invest today, I’d buy a basket of UK shares. This approach might not be suitable for all investors. Indeed, some might be more comfortable buying passive investment funds or investment trusts. This approach is perfectly acceptable, and it’s something I’d be happy to do.
However, I also enjoy picking my own investments, even though following this strategy can be risky.
The one drawback of using passive investment funds to invest in is that they can’t outperform the market. These funds are only designed to track the market.
But it’s possible to outperform the market by picking individual stocks and shares, even though they may underperform the market.
Despite this risk, here’s the UK shares I’d buy today with a lump sum of £10,000.
Building the foundations
The first two chosen companies are what I’d like to call foundation stocks. I believe every portfolio should have a handful of such stocks, because they’re slow and steady dividend payers. My favourites for this are National Grid and United Utilities.
Both are utility companies. National Grid owns the majority of the electricity infrastructure in England. Meanwhile, United Utilities owns a large swath of the water infrastructure in the north of the country.
These are highly regulated and controlled industries, and that means the amount they can charge consumers is tightly regulated. So that also means they’re unlikely to achieve explosive profit and earnings growth.
Regulators could also suddenly cut the amount of profit they’re allowed to earn. This could have a significant impact on their profitability.
Nevertheless, consumers will always need access to water and electricity. As such, sales are virtually guaranteed. This predictable nature allows these companies to plan ahead. They know roughly how much they can spend over the next few years and how much free cash they can return to investors.
This means they’re pretty predictable dividend payers. At the time of writing, National Grid offers a dividend yield of 5.2%, while United yields 4.2%.
This is why I’d buy these two companies for my portfolio of UK shares as dependable foundation stocks.
UK shares for growth
Alongside National Grid and United Utilities, I’d also buy consumer goods champions Reckitt and Diageo. I believe these companies have similar qualities to the utility industry. They both produce products consumed around the world and have a loyal consumer following.
However, they’re not regulated like the utility industry. Therefore, these organisations have more flexibility over their pricing strategy. They can increase prices year after year to drive earnings growth and support dividend increases.
That’s not to say they’re not immune to factors such as economic cycles and cost inflation. Indeed, they are. In an economic downturn, consumers may move away from Reckitt and Diageo’s branded products in favour of cheaper alternatives.
This is one challenge they’ll always have to deal with. Still, despite this risk, I’d buy both stocks for my £10,000 portfolio of UK shares, considering their global diversification, competitive advantages and growth potential.
With my foundation stocks in place and my consumer goods champions providing global growth, I’m happy to take a bit more risk in the rest of my portfolio.
I think mid-cap growth stocks provide the best of both worlds. They’re not as risky as smaller growth stocks, but they do offer the opportunity for capital growth.
In the mid-cap growth section of my portfolio of UK shares, I’d buy Watches of Switzerland and magazine publisher Future.
Both of these companies have a clear-cut growth strategy in place. Watches of Switzerland is using its pandemic windfall to expand its footprint across the country and globally. As wealth increases in the Western world, consumers are becoming more willing to splash out on big-ticket items, which is helping the watch/jewellery specialist.
Meanwhile, Future’s been adopting a buy-and-build strategy. It’s been acquiring smaller magazine publishers and using e-commerce to expand its footprint and profitability. This strategy’s worked incredibly well over the past few years. So it doesn’t look as if the group’s going to slow down anytime soon.
I’d buy these two UK shares, but I’m well aware they could face some risks as we advance. Higher taxes on wealthy consumers may hurt demand for big-ticket jewellery items. And while Future’s growth strategy’s worked so far, just one poor acquisition could cost the company a significant sum of money.
Speculative UK shares
The final bucket of stocks I’d buy for my £10,000 portfolio are more speculative growth shares.
These equities aren’t going to be suitable for all investors. I’m well aware of the risks involved with investing in speculative growth stocks, which is why I’d limit my investment in these equities.
One speculative stock I’d buy is Lamprell. This company manufactures equipment for the offshore oil and gas industry. It’s also building out a renewable energy division. This is what I’m most excited about, and it’s why I’d buy the corporation as a speculative growth investment.
Over the next few years, trillions of pounds will flow into the global renewable energy sector, and Lamprell has the potential to capture a share of this. The principal risks of the investment are the company’s weak balance sheet and cyclical nature.
Elsewhere, I’d also acquire Eco Animal Health. The animal-focused pharmaceutical group reported a 46% increase in sales last year. It’s reinvesting profits back into research and development, which I think should lead to growth in the years ahead.
However, animal pharmaceuticals is a highly competitive market. That means there’s no guarantee this small-cap will ever make it to the big time.
Rupert Hargreaves owns shares of Diageo and Reckitt plc. The Motley Fool UK has recommended Diageo and 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.