Investing £500, or any other amount, right now might seem like a daunting prospect. However, rather than avoiding the market, I’d invest in stocks for the year ahead. With the approval of coronavirus vaccines imminent, the global economy may return to growth in 2021. I reckon this could lead to large total returns for investors.
How I’d invest £500
While I think there’s a high probability the global economy will rebound in 2021, I can’t say for sure which stocks will produce the best returns. With that being the case, I’d buy a diversified basket of stocks. The best way to do this, in my opinion, may be to acquire an active or passive investment fund.
A passive investment fund could be the best option with as little input required as possible. These funds are designed to buy and hold an index, such as the FTSE 250. The manager doesn’t try and outperform the index, which makes these funds a low-cost way to copy the market’s performance.
For those seeking a more involved investment, an active fund may be more suitable. An active investment fund, or investment trust, can be an excellent way to buy into undervalued assets. These funds rely on an asset manager to pick stocks. This means they can be more expensive than their passive counterparts.
Still, these funds, especially investment trusts, can be an excellent way to invest in assets that wouldn’t usually be available to the average investor, such as hedge funds and private equity.
My personal preference has been to buy a blend of active and passive funds. This gives me the best of both worlds. That’s the strategy I’d use to invest £500 right now for 2021.
I believe this blend of funds would allow me to profit if the market continues to rise next year. And I may even earn a small return if the market goes nowhere, thanks to the active management side.
Single stocks
As I noted above, I think funds are the best way to invest in the market for 2021 due to their diversification. However, for those interested in single stocks, this route is also an option.
My favourite single stocks are high-quality blue-chip companies. Operations such as AstraZeneca and GlaxoSmithKline should be able to generate a strong total return for investors in 2021, no matter what the future holds for the global economy, in my opinion.
There are other stocks available, but these companies stand out for their defensive nature. Both firms operate in the pharmaceutical sector, which has been allowed to continue to work throughout the coronavirus pandemic. Both are also in the process of developing their own virus vaccines. This could act as a hedge against revenue declines in other areas.
If I had to invest £500 in just two businesses for 2021, I’d pick these stocks.