One of the most common questions asked by investors is how to invest a large lump sum. This is even more relevant today considering the uncertain economic environment, coronavirus pandemic, Brexit uncertainty and ultra-low interest rates.
All three of these factors present significant challenges for the economy and investors. However, trying to predict what will happen to both over the next few years tends to be a fool’s errand. It’s impossible to predict what will happen to either the economy and individual stocks in the long run.
Therefore, if I had to invest £10,000 today, I’d ignore the noise and focus on high-quality businesses, as well as a select basket of funds.
This approach may not be suitable for all other investors but, based on my knowledge and experience, I’m comfortable with the level of risk and challenges involved.
How to invest £10,000
To me, it’s clear that technology is changing the world. Many of the world’s largest technology companies are tremendous businesses with strong brands and impressive profit margins. As such, I’d want some exposure to these companies in my portfolio.
Most are located in the United States. But there’s also a growing number of tech businesses emanating from China. The Scottish Mortgage Investment Trust has recently readjusted its portfolio to capitalise on this trend. That’s why I would buy this firm with a portion of my portfolio. Currently, its most significant investment is the Chinese tech giant Tencent Holdings.
As well as this investment trust, I’d also buy a couple of individual stocks. I think Microsoft and Apple are some of the best technology businesses on the market. However, because these are US-listed, some investors may not be comfortable owning the stocks directly. So this might not be a suitable investment strategy for all. Still, I’m happy with the risks involved.
I’ve always firmly believed that if someone is learning how to invest, they should own a handful of high-quality consumer goods stocks. So, I’d buy companies like Unilever and Diageo for my £10,000 portfolio.
Once again, investing directly in these businesses may not be suitable for all investors. Some may not have time to complete the level of research required to understand each business. That could expose them to unnecessary risks.
Income stock
When learning how to invest, I also think it’s essential to stick to what the investor knows. And in my case, that’s insurance.
Therefore, I’d also buy Direct Line for my portfolio as well as the companies outlined above. This insurance group is well capitalised and highly profitable. It currently supports a dividend yield of around 7%. It’s also buying back its own shares as another way to return cash to investors.
Of course, I’d buy this company because I know the sector well. It may not be suitable for other investors as insurance is a complex industry to understand. If Direct Line gets its sums wrong, the firm may incur significant losses.
So that’s how I’d invest £10,000 today. I’d stick to the companies I know. Slow and steady consumer goods giants and tech sector leaders.