For anyone who doesn’t have access to a crystal ball, it’s impossible to guess with any certainty how stock markets will behave in 2020. What we can assume at this juncture, though, is that more political turbulence, more central bank rate-cutting, and worsening economic conditions in key European and Asian economies would appear to be the order of the day.
Let’s say that you’re an investor with £1,000 burning a hole in your pocket (wishful thinking for many as the expensive Christmas period approaches, I know). What’s the best way to play this? Sure, this isn’t the biggest amount that you have to play with, but it’s still possible to put it to good use and make some big returns over the next year (and beyond).
Follow these rules
If you’re working on a tight budget, there are some rules you might want to abide by. Firstly, and this probably goes without saying, it probably pays to be a little more careful with how you use those sparse pennies. And particularly in the current environment where a host of macroeconomic and geopolitical issues threaten to derail risk appetite across financial markets.
Secondly, it’s critical that you don’t get bogged down in excessive transaction fees by going in and spraying your money across a variety of stocks. Equally, though, it’s not always wise to put all of your eggs in one basket, a tactic that could see the value of your invested capital erode sharply should investor appetite for a particular sector, company, or indeed equity markets on the whole take a dive.
A winning formula
So bearing all this in mind, what’s a good way to invest that £1k with an eye on 2020? Well, to kick things off, I think getting exposure to some classically defensive shares is a sound idea, shares that could actually rise in value as stock picker tension drives demand for safe havens.
These could be producers of gold or silver like Centamin or Polymetal, shares that would benefit from any upswing in precious metal prices. They could be manufacturers of fast-moving consumer goods (FMCG) that have exceptional brand power, like a Diageo or Reckitt Benckiser. Or maybe pharmaceutical firms like GlaxoSmithKline, defence stocks like BAE Systems, or utilities firms like National Grid.
I would then look at ways to play these firms via an exchange-traded fund (or ETF) that invests in stocks but doesn’t involve the higher costs of buying shares in individual companies. And there’s a terrific variety of options for defensively-minded investors to go for in 2020.
Those expecting a rise in gold prices, for example, can buy something like the Sprott Gold Miners ETF that tracks the share prices of an assortment of bullion producers (this has the benefit of classic gold-backed ETFs, which track gold prices but don’t pay dividends). Or those wanting exposure to FMCG can buy into a fund like the Vanguard Consumer Staples ETF. Defence sector investors can get involved in the iShares U.S. Aerospace & Defense ETF, and so on.
Stock markets are teeming with uncertainty, but by investing the right way, it’s possible to capitalise on this environment and make some big money. So I say, get share buying today.
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Royston Wild owns shares of Diageo. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.