Over the past decade, the financial world has seen a revolution. Investors no longer have to pay vast amounts to trade stocks, nor do they have to have account balances worth hundreds of thousands of pounds.
Instead, anyone can start investing in stocks with just a few pounds using apps such as Freetrade. Other brokers have also significantly lowered their costs, which has opened up the market for millions of individual investors.
Thanks to this revolution, investors can build diversified portfolios with relatively small sums. With that in mind, here’s the approach I’d use to start investing in stocks with £5k.
Start investing in stocks
I’d choose three main buckets of stocks for my portfolio. First of all, I’d buy two or three slow and steady dividend payers. Companies such as Severn Trent, Greencoat Wind and Foresight Solar Fund. These are all utility stocks, which suggests they have a defensive nature.
What’s more, they support dividend yields of between 3.8% to 6%, giving my portfolio a steady income stream. These firms aren’t incredibly exciting, but they do offer stability. And that’s what I’m looking for to start investing in stocks.
The main risks facing these enterprises are regulations and rising interest rates. Both of these headwinds may restrict returns for investors.
The second bucket of stocks I’d buy are blue-chip growth champions. AstraZeneca is an excellent example of the type of company I’d like to buy, and so is Robert Walters. Both of these organisations are benefiting from structural tailwinds. Demand for healthcare is expanding, and so is the recruitment market at this point.
Both of the businesses also have robust competitive advantages. In the case of Astra, it can spend billions every year on research and development. Meanwhile, Robert Walters is one of the most significant players in the global recruitment market for professionals.
However, unlike the utility companies outlined above, neither of these groups has a guaranteed market. Astra is always having to fight off competitors, and the recruitment market is subject to the economic cycle. Nevertheless, considering each company’s growth potential, I’d buy these equities.
The final bucket of stocks I’d buy are more speculative. These are companies that interest me but might not produce a positive return. That’s why I’d only invest around £500 of my £5,000 total in these enterprises.
The private jet broker Air Partner is one company I’d buy. I’d also acquire Tullow Oil. This oil explorer came close to collapse last year, but it’s now set to benefit from rising oil prices.
I’d buy both of these stocks as speculative investments. But due to the nature of these companies, they may not be suitable for all investors. Some investors, when they start investing, may prefer to stick with defensive blue-chips.
That’s the approach I’d use to invest £5k as I believe it combines the best of growth, income, and speculative growth plays.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Foresight Solar Fund Limited. 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.