There are several reasons why I’m looking to invest in stocks right now. Firstly, I’m unhappy with the rate of return I’m earning with my money sitting in cash. Secondly, I think there are some undervalued companies in the FTSE 100. Thirdly, investing my money will make me less likely to spend it on stupid things (like new golf clubs). So for the price of a new set of irons, here are three different ways I could put £600 to work and invest now.
Investing in UK stocks
One way would be to put all of my money into a FTSE 100 tracker fund. This might sound boring, but if I don’t want to spend a lot of time researching individual companies, I think this is my best option. That’s because UK assets are relatively cheap when compared to those in the US.
For example, while US stock markets are making fresh all-time-highs, the FTSE 100 is a long way off this mark. I can blame Brexit, GBP appreciation or other factors that caused this. But either way, I see the FTSE 100 as currently trading below a fair value.
I expect this to catch up over the course of the rest of 2021, thanks in a large part to the vaccination rollout and easing of lockdown. The Bank of England is forecasting a rebound in GDP later this year and beyond. If this is realised, then I expect the companies within the index to outperform, pulling my £600 in the tracker higher in value.
The downside of this is that I might have a high conviction on particular stocks, or not want to invest in others because of ESG investing concerns. If that is the case, a generic tracking fund might not be the best way to invest now.
Being selective when investing now
Another way would be to split the £600 evenly between three stocks. Any more and I risk spreading my money to0 thinly, and face unnecessary trading fees eating into my pot. I would pick three stocks that I really believe in, and put my money where my mouth is.
I can still tie this into my point above of thinking the UK economy could do very well this year. But by focusing on just a few companies, I can try and achieve a higher return than the FTSE 100 as a whole.
For this, I’d target domestic stocks that are in sectors that could see high growth. For example, I’d look at UK homebuilders and banks with a large UK presence.
A final way I’d invest £600 now is via dividend stocks. After all, if one of my aims is simply to get a better return than my cash account, this could be the way to go. Again, I would try to not spread my money too thinly, and go for three or four stocks.
Holding different stocks that pay dividends allows me to reduce my risk when trying to get income. I can select some stocks that offer a high dividend yield but could be risky. I can blend this yield with some lower, more stable dividends.
Each way of investing my £600 offers different angles depending on what my personal preference is.