The stock market crash provided some good investment opportunities in March. For example, if you’d bought some of the top UK stocks towards the middle of the month, you’d have likely seen some impressive returns. Had you bought GlaxoSmithKline shares on March 23 and checked your position exactly one month later, you’d have been up 22%!
Now we’re in Q3, and the market has settled down somewhat. But if you’ve got liquid funds that you’re wanting to invest in top UK stocks, I still think there are some good opportunities to make large returns.
What makes a top UK stock?
It’s a fairly ambiguous term right? So let’s start by putting in place some parameters of what we’re looking for. I wouldn’t include stocks that are trading at large discounts. Rather, I’m looking for stocks that are already outperforming peers. I want to focus on stocks with good liquidity, so am steering away from micro-cap firms. As a tangent, micro-cap stocks can be a great investment and you can find some examples here. But for the purpose of this piece, I’m sticking to FTSE 250 or FTSE 100 firms.
How I’d invest £5,000
A key investment theme is diversification. This means that you want to split up your £5,000 into different chunks and invest in various different UK stocks. In theory, this will reduce your overall risk and should smooth out the performance of your portfolio.
I’m also a firm believer in not diversifying yourself too much. Buying 100 stocks with your £5,000 is ultimately going to be more hassle than it’s worth. Once you go past about a dozen stocks, it also won’t really add much to the portfolio. Therefore, I’d look to invest in five different stocks, each with £1,000. This gives you a good opportunity for a decent return should one of the firms continue to be a top-performing UK stock.
I’d look to mix up the sectors I invest in, allowing me to take advantage of the reopening of the UK economy, but at the same time protecting myself in case things get worse. For example, I’d invest in Rightmove. There are plenty of signs that the property market is starting to perform well, so would seize that opportunity. At the same time, I’d also invest in Ocado. The online supermarket did very well during lockdown, and so if the country did see a second wave of the virus, the share price should still perform well. Mixing up the sectors helps to protect the portfolio but still allows for top UK stocks to help me outperform the broader FTSE 100 index.
Don’t waste the stock market crash
Given that the broader FTSE 100 index hasn’t completely recovered from the crash, it’s important not to waste time by sitting on your hands. Could the market crash again? Yes. Nobody knows when this will happen, or even if it will happen. Investing is about making a decision based on the facts you have at your disposal, not on uncertainty. With that in mind, I’d be keen not to miss the opportunity to buy some top UK stocks right now.