I’d love to have a big fat lump sum to invest in the UK stocks today. Like, say, £100,000. Sadly I don’t, but that doesn’t stop me from dreaming of where I’d invest such a sum. I think there are some exciting opportunities on the UK stock market today, but I’d also have to protect my money against another stock market crash.
As ever, when investing in UK stocks, or any asset class, I’d aim to balance the potential rewards against the risks. I believe investing in equities is one of the most rewarding things you can do with your money.
History shows that stocks and shares deliver a greater total return than almost every other asset class, over the longer run. The risk is that, in the short term, they can be volatile, as we have seen lately. That’s why I’d only start investing my £100,000 if I could leave the money in the market for a minimum of five years. And preferably much, much longer.
I’d invest in FTSE 100 shares
I wouldn’t slap my entire £100,000 into UK stocks today, in case the market crashed tomorrow. Instead, I would invest regular chunks over the next six months, to reduce that risk, too.
The attraction such a large sum is that you can spread it between different companies from different sectors, with different risk profiles. So I might invest, say, £5,000 into high-risk companies that could fly if vaccines see off the pandemic this year.
I’d begin by checking out UK stocks in the embattled airline sector, where International Consolidated Airlines Group, easyJet and Ryanair Holdings look tempting, but scary. I might also take a punt on Rolls-Royce Holdings, whose revenues from aircraft engines and maintenance contracts have plunged. I’d be very wary though.
Next, I’d offset this risk by investing £5,000 in gold. Probably through a low-cost tracker such as the Invesco Physical Gold ETC. Then I’d further balance my risk, by investing £20,000 in a selection of bond funds, by managers such as M&G or Royal London.
I like these UK stocks
Thereafter, I’d spread my money across the stock market, investing £20,000 in a low-cost FTSE 100 tracker such as the iShares Core FTSE 100 UCITS ETF and £10,000 in the HSBC FTSE 250 Index.
That still leaves me £40,000, which I’d feed into UK stocks, starting with my favourite FTSE 100 blue-chips. Choices might include equipment rental specialist Ashtead Group, outsourcer Bunzl, global spirits giant Diageo, utility National Grid, pharmaceutical stock GlaxoSmithKline and household goods company Unilever.
By investing in individual UK stocks like these, I’d be aiming to generate a higher return than the overall market.
I accept my stock picks may have periods of underperformance. Also, if the market crashes again this year, my £100,000 could temporarily shrink in value. However, my gold and bonds should limit the short-term pain.
Over the longer run, I think UK stocks will generate most of the returns in my portfolio. My gold and bond holdings will help me sleep at night.
