If I had £100k to invest in the stock market, I’d be tickled pink. I spend my days writing about FTSE 100 shares and I’d love to have the financial firepower to load up my portfolio.
I’d also calm down and approach the task with a clear head, rather than going on a splurge. First, I’d make sure I had enough cash on easy access for emergencies. Next, I’d pay off expensive short-term debts, such as a credit card.
Let’s assume I can invest the full £100,000 over a term of 25 years or more. That allows me to put my windfall into global equities, which offer superior returns over the longer run, but with plenty of short-term volatility.
Time to get planning
I would start by spreading my money across a range of global equities in the simplest and cheapest possible way.
I would do this by purchasing an exchange traded fund (ETF) such as the Vanguard FTSE All World UCITS ETF. This tracks thousands of firms across developed and emerging markets, and charges just 0.22% a year. I’d put, say, £10,000 into this right away to get me started.
I would supplement it by investing £10,000 into both the F&C Investment Trust and Monks Investment Trust, which have been investing in a spread of global shares since 1868 and 1929 respectively. They are also cheap, charging just 0.54% and 0.40%.
Next, I would put £10,000 into the cheapest S&P 500 tracker I could find, to give me US exposure. Personally, I’d buy the iShares Core S&P 500 UCITS ETF, which charges just 0.07% a year. Fidelity, Invesco, SPDR and Vanguard all offer similar.
Then I’d invest my next £10,000 in Terry Smith’s actively managed Fundsmith Equity, and hope he continues to deliver stellar outperformance.
That leaves me £50,000 to have some fun with UK shares. Again, I’d start by spreading my risk, by investing £10,000 into equity income fund The City of London Investment Trust. It currently yields 4.76% a year, while charging 0.33%.
There’s no rush
After that, I’d roll up my sleeves and do my research on FTSE 100 and FTSE 250 stocks, but particularly the former. I’d invest my remaining £40,000 in a balanced spread of around a dozen dirt-cheap dividend stocks, putting £3,000 or £4,000 into each.
The FTSE 100 is crammed with top blue-chips offering above average yields of between 5% and 9%, which I’d invest straight back into my portfolio for growth. I’ve got a heap of targets, including Barclays, Legal & General Group and Taylor Wimpey, and would love to go on a spree.
I wouldn’t invest the whole £100,000 in one go. I would feed my money into the market over several months, to avoid getting hit by a correction. Also, I would take advantage of any share price dips to secure a cheaper entry price.
Investing in shares is riskier than sticking money in the bank. Markets can crash, dividends can be cut, companies can go bust. Yet history shows that over the long run, equities beat almost every other asset class.
In time, my £100,000 should be worth a lot more, and generate the income I need for retirement and a nice inheritance for those I love. I can dream, can’t I?
