I’d invest £1,000 in shares right now. With the stock market still depressed following the spring crash, I think it’s a good time.
Over the long term, shares have outperformed most other popular asset classes. Meanwhile, it’s easy to see the returns from cash accounts are on the floor right now. But so are the yields from bonds. And low interest rates have helped to drive the property market up.
Where I’d invest £1,000 in shares right now
Shares though have been weak. And, in some cases, the underlying companies are paying attractive dividend yields. For example, in the energy sector, I like the look of SSE and National Grid. In healthcare, I’m keen on GlaxoSmithKline’s fat shareholder dividend. And among fast-moving consumer goods suppliers, I find Unilever and Britvic appealing.
Indeed, I’d be happy to build a long-term portfolio with all those shares in it. But a £1,000 investment is the minimum amount I’d be prepared to put into the shares of a single company. That’s because the transaction costs could make a lower investment uneconomic. I’m thinking of the broker’s trading fee and the cost of the spread between the bid and ask prices.
I could choose one company and buy some of its shares with my £1,000. Then, when I’ve more money to invest I could choose another, and so on, with the aim of building a diversified portfolio over time. But, in the early stages, my portfolio would be undiversified and unbalanced. So perhaps it would be a better idea for me to look at collective investments in the early stages of my programme of investment.
One way could be to invest in managed funds. Fund managers such as Nick Train of Lindsell Train and Terry Smith with his Fundsmith Equity Fund have decent records of delivering top performance for investors. If I invested in their funds, my money would be spread over many underlying individual company shares. And fund investment is a convenient way to get wide diversification.
Low-cost tracker funds
Another approach could be to look at low-cost tracker funds. Indeed, rather than fund managers trying to beat the market by picking shares, trackers run a mechanical strategy. The aim is to replicate the performance of a benchmark, such as the FTSE 100 index, the FTSE 250 index, or maybe America’s S&P 500. Indeed, there are many tracker funds available allowing me to target just about any niche in the market I can think of.
The advantage of trackers is the initial and ongoing charges are very low. And I won’t have to worry about a fund manager underperforming, as happened with the Neil Woodford funds recently.
So, for my first £1,000 investment, I’d target a high-dividend index. And, to me, the FTSE 100 is ideal for the purpose. Later, with further investments, I could diversify between trackers and managed funds. And when my investments have grown, I could pick some shares in individual companies too.