If I had a lump sum of £500 to invest right now, I’d put the money into buying a basket of UK shares.
There are a couple of possible strategies to achieve this. So today, I’m going to explain the approach I’d use.
How I’d invest £500
First of all, I’d buy UK shares right now because they appear to be dirt cheap. According to some analysts, UK stocks are trading at their most significant discount to international peers since the 1980s.
Of course, there are some reasons for this discrepancy. The potential disruption from Brexit and the bleak outlook for the UK economy from the pandemic are big enough reasons to scare away most investors.
However, I think there are also plenty of reasons to be cheerful about the outlook for UK shares. For example, many companies are seeing booming profits, thanks to technological disruption.
What’s more, businesses with considerable international divisions are unlikely to be as impacted by Brexit as the rest of the market. More than 70% of the FTSE 100‘s profits come from outside the UK, which makes this a very international index.
With all of the above in mind, I reckon UK shares currently present an attractive proposition for investors.
UK shares to buy
I’d invest in London-listed equities using a diversified approach. A lump sum of £500 is enough to get started. Unfortunately, it’s not enough to build a diversified portfolio of shares.
For a portfolio to be truly diversified, it needs around 30 shares. After all costs and charges are taken into account, it’s not economical to have less than £2.5k devoted to each holding.
However, one way to get around this issue is to use an investment fund. A FTSE 100 tracker fund, for example, would allow for an investment of £500 in 100 different businesses at the click of a button. And because these funds pool billions of pounds of investors’ money, the costs of buying these holdings is incredibly low.
I would buy an FTSE All-Share tracker with my lump sum. These funds track the performance of the FTSE All-Share, which is made up of the 600 largest UK shares. I think this would provide the best of both worlds — growth from smaller companies, as well as the stability and international diversification of blue-chips.
Individual investments
Another option I might consider to invest £500 is to use an investment trust. These have similar qualities to investment funds. They allow investors to own a basket of stocks at the click of a button. However, they provide access to a broader range of assets.
One of the largest is RIT Capital Partners. This investment trust owns a portfolio of private companies, hedge funds and real estate. It would be virtually impossible for the average investor to build a similar portfolio with just £500. But RIT provides that option.
Of course, investing £500 in individual UK shares is also an option. But investors need to be careful which stocks are acquired. Some have much better prospects than others.