If I was lucky enough to have £100,000 to invest in FTSE 100 shares, I’d approach today’s market with caution. I wouldn’t throw the lot in right away, even though the index has just flown past 7,000.
My first step would be to slap £5,000 in a low-cost FTSE 100 tracker. That way some of my money will benefit from stock market growth and dividends, right away.
I might up that to £10,000, but no more at this stage. My big concern with paying in a fat lump sum is that if the stock market crashes next day, it’s going to hurt. That’s why I favour drip-feeding money into FTSE 100 shares, rather than throwing it at them.
I’d buy a spread of the best shares
I’d buy a couple of utility stocks though. For example, National Grid and United Utilities Group both offer a solid dividend income, with minimal share price volatility or capital risk. The sooner I start generating that income, the better.
I’d then look to divide my windfall into smaller sums, and feed them into FTSE 100 shares over several months. I’d take time to research individual company stocks, to build a balanced portfolio.
I’d examine my existing portfolio to see what I already hold. Should I increase my exposure to the fast-rising financial sector by investing in, say, Barclays or Lloyds Banking Group? Or play the resurgent oil-price, by investing in the shares of FTSE 100 giants BP and Royal Dutch Shell? What about the booming commodity sector? Is now the time to fill my boots by investing in BHP Group and Rio Tinto?
The answers will partly depend on how much I already hold in these FTSE 100 shares or sectors. I might prefer to load up on household goods suppliers Reckitt Benckiser Group and Unilever instead. These are all stocks I like, even though there are company-specific or sectoral risks attached to each of them.
I’d buy FTSE 100 shares despite uncertainties
Nobody can reliably second-guess markets or sectors, so I’d aim to have a balanced exposure to all of them. That said, I do like to buy shares when they’re out of fashion, and therefore cheaper. So I might take a small chunk of my money and play the Covid recovery. FTSE 100 shares such as Cineworld Group, easyJet and Rolls-Royce Holdings have been hammered by the pandemic, but could snap back quickly if we are liberated from lockdown.
FTSE 100 shares may be solid blue-chips with market-caps running into the billions, but they can still be volatile. I’d therefore aim to buy and hold for the long term, which would allow me to look beyond short-term stock market swings.
Today’s stock markets have been inflated by fiscal and monetary stimulus unleashed during the pandemic. That explains why share prices are rising, despite the economic damage. I suspect that share prices may drop, possibly shortly, especially if mutant Covid strains threaten the recovery.
Drip-feeding money helps to ease my concerns. I would take advantage of any dips, to buy shares at reduced prices. Then I’d leave my portfolio to grow for decades. That way I should be able to sleep easily, despite the short-term volatility.