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How I’d invest £5k in the stock market crash

The current stock market crash has come as a major shock to many investors. However, it has also thrown up some incredible bargains, provided you are willing to invest for the long term, and let the recovery bed in.

Now could be a good time to invest a lump sum, such as £5,000 in a Stocks and Shares ISA. The same advice could just as easily apply to £1k, £2k, £10k, or £20k.

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As the coronavirus outbreak hammers share prices, many stocks on the FTSE 100 now look incredibly cheap by conventional standards. You have to tread carefully, though, because some may have suffered lasting damage. I would be wary of travel stocks such as cruise operator Carnival, for example, or tour operator TUI AG.

Stock market crash winners and losers

The travel sector is right on the front line of the slowdown, and while shares there could turn out to be amazing bargains, you’d need nerves of steel to buy them today.

You might prefer to focus on defensive companies, ones that provide basic services people still need in a lockdown, including gas and electricity, or food and other household goods. I think water company United Utilities Group and pipes and wires transmissions group National Grid look solid buys, as demand for their services holds up, and government-regulated profits provide stability. Right now they yield 4.69% and 5.13% respectively, offering relative dividend solidity.

Grocery chain Tesco and home delivery specialist Ocado Group have also held firm in the stock market crash, because people still need to eat.

Top FTSE 100 opportunities

So has household goods firm Unilever. It has avoided the worst of the crash, yet trades at 17.45 times earnings, which counts as a bargain valuation by its high standards. For years, it has hovered around 24 times. It’s the same story for rival Reckitt Benckiser Group, which trades at 17.5 times earnings. Both look tempting to me today.

Housebuilders Barratt Developments and Persimmon have downed tools and scrapped their dividends, but the UK housing market is resilient, and they could spearhead the recovery, when it comes.

Don’t waste your Stocks and Shares ISA

Another way to take advantage of the stock market crash is to buy the entire FTSE 100 or FTSE All-Share, through a low-cost tracker fund, inside a Stocks and Shares ISA. The advantage of this is that you do not have to pick out individual stocks or sectors, but can spread your risk across a broad range of companies.

If I was investing £5k right now, a combination of two or three individual stocks, plus a tracker, might work best.

Remember to use your Stocks and Shares ISA allowance before this year’s deadline of 5 April, otherwise you have lost it for good. Personally, I would shun the Cash ISA. Interest rates are falling to ever lower levels, while many top FTSE stocks continue to yield 5%. Plus you will also get capital growth when their share prices finally recover.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Carnival and Tesco. 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.