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How I’d invest £1k in UK shares right now

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If I had a spare £1k, and wanted to get started with an investment portfolio, which UK shares would I buy first?

There’s no one-size-fits-all answer to this question. Indeed, there are thousands of investment strategies and funds investors can use to build wealth. 

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However, I wouldn’t invest directly in UK shares with only £1,000. Although some online stockbrokers now offer commission-free trading, other execution costs such as stamp duty, which is usually set at 0.5% of the transaction value, and the spread between the buying and selling prices on offer, can’t be avoided.

I’d also be worried about diversification. A lump sum of £1k is not really enough to build a well-diversified portfolio. As such, I could end up owning just a handful of UK shares, which could be quite risky. 

Luckily, there are plenty of other strategies I can make use of to invest a lump sum in shares today. 

How I’d invest £1k in UK shares

The most straightforward approach available to build a diversified portfolio of investments is to buy a fund. There are two primary groups of funds I could choose from, actively managed funds and passive funds. 

Actively managed funds use an investment manager to select investments. On the other hand, passive funds use computer models to follow benchmarks such as the FTSE 250. As such, there’s almost no risk that the fund manager will pick the wrong investments. 

Passive funds tend to be cheaper than active funds. The best passive tracker funds on the market charge fees of less than 0.1% a year. Some may charge more, but as they all do the same thing, there’s no need to pay the extra fees. 

I believe owning a passive tracker fund is one of the best ways to invest a lump sum with minimal effort. Fees are low, and it provides instant diversification. That’s why I would allocate a chunk of my £1,000 investment to such funds. 

A big drawback 

However, passive funds have one main drawback, they tend to follow just one asset. On the other hand, actively managed funds, in particular, investment trusts, can own other assets such as hedge funds and private businesses. 

I might pay a bit more for this diversification, but I think it could be worth it. For example, in this year’s stock market crash, diversified investment trusts that owned other assets such as private businesses outperformed UK shares. 

Four of my favourite trusts, which follow a diversified strategy, are Personal Assets TrustRIT Capital Partners, Brunner Investment Trust and Caledonia. All four own a portfolio of assets that would be difficult for the average investor to replicate, especially with an investment of just £1,000. 

The bottom line 

So all in all, if I had £1,000 to invest today, I would use a combination of passive tracker funds and actively managed investment trusts to build a portfolio that could withstand all investment environments, with the goal of building wealth over the long run.

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Rupert Hargreaves owns shares in Personal Assets Trust. The Motley Fool UK has no position in any of the shares mentioned. 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.

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