How would I invest £500 if I could only buy one UK stock for life? I’ve a myriad of options. Tiny loss-making firms, global giants generating £billions in profits, and everything in between. There are also numerous listed investment companies.
Here, I’ll look at the pros and cons of the available options. And tell you about my one UK stock for life.
How I wouldn’t invest £500
First off, let me say I’m not a gambler. I don’t look at the stock market as a casino and wouldn’t punt my £500 on a to-the-moon-or-bust ‘story stock’.
I might just win big, but there’s a high risk of blowing my money completely. A permanent loss of capital — even the relatively small sum of £500 — can be costly over a lifetime.
A better option
If I wouldn’t invest £500 in a story stock, how about a well-established profitable business? That’s more like it, in my book. But there’s still a risk I could pick a company that turns out to be a dud. For example, Carillion, Debenhams and Thomas Cook have all gone bust and wiped out their shareholders in recent years.
If pushed, I’d pick a global business with strong, consumer staples brands and reliable cash flows. I think Unilever is a good example. However, there’s another approach I could take to invest my £500.
One-stop-shop diversification
As mentioned earlier, there are numerous investment companies listed on the stock market. Most of them invest in a range of other companies. This one-stop-shop ‘diversification’ reduces risk, and appeals to me.
However, I still have scores of investment companies to pick from. Should I go for an industry specialist, like Polar Capital Technology Trust? How about a country specialist, such as Fidelity China Special Situations? Or would I be better off picking a company that invests across many industries and countries, like Monks Investment Trust?
The one stock I’d invest £500 in for life
Personal Assets Trust (LSE: PNL) sits well with my attitude to risk and reward. Its policy is to “protect and increase” (in that order) the value of my investment. Its holdings are diversified across the four traditional asset classes: equities, bonds, gold and cash.
At its last financial year end, 43% of PNL’s portfolio was in equities. Its top 10 holdings included Microsoft, Visa, andNestlé. Bonds represented 41% of the portfolio. It also had 11% exposure to gold and held 5% cash.
PNL reported on its long-term performance. Since 1990, it’s grown its net asset value at a compound annual growth rate of 7% compared to 4.4% for the FTSE All-Share index and 2.8% for RPI inflation.
PNL’s share price is £485, as I’m writing. This means I could buy one share with my £500! If PNL were to reproduce its historical growth rate for the next 60 years, my little ol’ £485 share would be worth over £28,000 (or £5,740 in real terms, adjusted for inflation). It’d count that as a decent return on my investment.
Of course, past performance is not necessarily a good guide to the future. My £485 share may not increase in value as calculated above. However, I think there’s a very low risk of losing my capital. This is because of PNL’s diversification across and within different asset classes.