Sometimes (if not often enough) I find myself with some extra cash. For example, last week I finally got my £500 refund through for some flights that were cancelled due to Covid-19 last year. Or a couple of years ago, my tax bill was less than expected. In these (and other cases), I can end up with a lump sum to use. Adding up recent surpluses, I’ve got a £1,000 lump sum at the moment. So here are the UK shares that I’d decide to buy now.
Put the money to work
The first thing I’d do is make sure I put the £1,000 to work straight away! Sitting with it in my bank account might feel nice, but it’s going to do me more benefit by putting it into buying UK shares. Why? Well from one angle, the cash isn’t going to make me any return in my bank account. It’s true that stocks go down as well as up, but I’d at least like to give my money the opportunity to gain in value.
Secondly, I could have the lump sum and think that I’ll hold onto it until I see another market crash like last March. There’s nothing wrong with trying to be smart, but timing the market isn’t something I’d suggest. If no crash happens and the UK shares that I was going to buy rally 10%, I’ve missed out on a good opportunity. So making sure I put the money to work straight away solves both of the above potential problems.
Splitting the investment into UK shares
£1,000 is a lot of money, so I don’t want to invest it in just one stock. However, I don’t want to spread it too widely. For instance, looking to buy 100 UK shares with the lump sum also doesn’t make sense. It’s going to take me far too long to research all the companies, I’d lose money in dealing charges and I’d be better off putting the whole amount into a FTSE 100 tracker in that case. Anyway, I’m trying to beat the market, not just equal it via a tracker fund.
I think a good mix is around five stocks, with £200 spent on each. This gives me enough concentration that if one UK share performs exceptionally well, it’ll make a difference overall. At the same time, it’s diversified enough not to be ruined if one company really underperforms.
Sectors I currently like
On the basis of being active, I’d look to target UK shares to buy in certain sectors I’m interested in. For example, I’d put some money in a defensive sector like utilities. These stocks should also offer me income via dividend yields.
To try and outperform the average, I’d buy some growth stocks in the technology sector too. This industry has performed very well recently. The risk with technology is that valuations could be getting too high, and a correction could happen.
Finally, I’d look to add in some unloved companies that may be due a turnaround. Travel and tourism is the sector here that springs to mind. It’s risky, but the payoff could be large if the impact of the pandemic recedes later this year, along with added Government support.
I think buying UK shares within these three sectors I think gives me a good balance for my £1,000 lump sum.