One of the challenges of investing relatively small amounts in the stock market is how to balance the need for diversification with the impact of trading fees. Let’s say I had a spare £200 and was looking for UK shares to buy right now for my portfolio. If I diversified across only two shares, I’d probably still end up paying a substantial percentage of the £200 on trading fees. Still, if the shares had enough growth or income potential, they might still end up making me a profit if I was willing to hold them patiently.
On that basis, here are two British shares I’d happily buy for my portfolio today.
The drinks company Diageo (LSE: DGE) owns premium brands ranging from Guinness to Baileys. That helps give it pricing power, which in inflationary times can help support profit margins.
But the growth story at Diageo is about more than combating the threat of inflation. I think the company’s collection of iconic brands can help it stay profitable far into the future. It has spent heavily over decades to build customer loyalty. Many of its distinctive products are not easily substitutable. That means customers are unlikely to switch to competitors.
All of that adds up to an investment case that I think may strengthen in coming decades. With an eye on developing markets and newly affluent customers, Diageo strikes me as a way to gain exposure to long-term growth in the global economy. Over time, I expect that to expand.
There are risks here, including a growing aversion to alcoholic drinks among younger consumers. I think Diageo can use its marketing prowess to navigate changing tastes. For example, its acquisition of non-alcoholic brand Seedlip suggests that it has an eye firmly on the future.
Self-storage specialist Safestore (LSE: SAFE) has the sort of boring business model that attracts me as an investor. That is because it has identified a profitable niche with long-term growth prospects – self-storage – and is focussed on expanding its business within that area year after year.
The drivers for long-term growth in self-storage include smaller houses driven by rising property costs, flexible business locations, and an increase in location-independent working. All of those could help boost demand for self-storage in my opinion. The attractiveness of the business model is simple. A company like Safestore can rent a space and then, by divvying it up into many smaller units, more than cover its own rental payments. The company’s sustained investment in its brand enables it to command premium pricing.
Possible headwinds include low barriers to entry in the storage industry. That could hurt profit margins of existing market participants, including Safestore.
Why I see these as UK shares to buy for my portfolio
I think Diageo and Safestore are well-run companies, each with a competitive advantage. I don’t foresee dramatic growth in coming years. But I believe each has a long growth runway.
Over time, that could result in higher share prices. Meanwhile, both pay dividends. If I stuck £100 in each share today and left it there for a decade, hopefully my small nest egg may increase in size over time.
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Christopher Ruane owns shares in Safestore. The Motley Fool UK has recommended Diageo. 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.