Despite Brexit getting firmly underway and some removal of economic uncertainty, the outcome of the split isn’t exactly clear yet. As a result, the Bank of England kept interest rates unchanged last week, and kept the door open for both cuts or increases depending on how the UK economy fares going forward.
In this scenario, it can be tempting to consider options that carry the minimum risk when investing my first £500.
Considering Cash ISA, buy to let, and gold
One of these options is the Cash ISA. But the interest rates on these accounts is abysmally low, and there are no prospects of their rising anytime soon. Another popular investment avenue is buy-to-let property, but as appealing as it is for creating regular income, it has its downside too.
Gold investments have a special allure during downtimes. Globally, last year was a tough one. The US and China were caught in a trade-related deadlock, the Brexit process was going nowhere fast in the UK, and there was political unrest in Hong Kong. Global growth slowed down to its lowest since the financial crisis.
It’s little wonder that prices for the yellow metal have been trudging up slowly but surely since mid-last year and are up by almost 20% since. Yet, there’s no guarantee that they will continue to rise in the future if things turn for the better. Holding gold is a good idea in so far as it’s an insurance for bad times. But there are potentially more lucrative opportunities to consider in the current times, which may well get much better.
FTSE 100 looks good
The stock markets are one of them. If I’m looking to invest my first £500, the FTSE 100 is where I’d put it. It’s true that the performance of the index itself has been underwhelming over the past year. But there are plenty of stocks that offer high dividend yields or capital appreciation or a combination of both.
If I’m interested in generating a predictable income from my stock portfolio, instead of engaging in active buying and selling, then I’d consider predictable stocks with high dividend yields. My top pick in this set is the telecommunications provider BT, and I’ve invested in it myself. It has a yield of 9.8% as I write and will quite likely continue being a winning stock for the income investor.
If I’m interested in capital appreciation, there are plenty of stocks available that have shown good growth over the past year. I quite like the real estate portal Rightmove right now, because of the prospects for internet-based businesses, the green shoots of an upturn in the property market, and the fact that its share price has risen 50% from last year.
If I want a mix of both dividends and growth, I’d consider the Anglo-Australian miner Rio Tinto, which currently offers a dividend yield of almost 6% and has seen a doubling in share price over the past five years.
However we like to invest, there are a number of options available in the FTSE 100, and I reckon they’ll hold us in good stead.