If I had £2,000 to invest in the stock market right now, I’d buy a mixed basket of UK shares. To put it another way, I’d acquire both income and growth stocks for my portfolio.
I think this approach would allow me to benefit from the best of both worlds. Adding defensive income stocks to my portfolio would provide solid foundations and a steady stream of income to reinvest.
Meanwhile, the growth stocks could generate capital growth, and I can let them grow while receiving the income from the other side of the portfolio.
UK shares for the income portfolio
The first stock I’d buy for the income side of my portfolio is the utility group SSE. In my opinion, this company has several attractive qualities.
First of all, it’s a defensive income stock. Investors are currently in line to receive a dividend yield of 5.7% from the shares this year.
And secondly, the energy supply and transmission business is investing billions of pounds in renewable energy projects over the next few years. I think this investment will help push earnings higher and protect the company from technological change.
Another stock I’d buy for the income side of my £2k portfolio of UK shares is Severn Trent. Another utility supplier, this stock offers a dividend yield of 3.7% at present. The company also has a track record of above-average dividend increases.
Both of these firms are exposed to the same risk. Utilities are highly regulated, and there will always be a chance regulators decide to take a more aggressive line with the operators. This could lead to reduced earnings and lower dividends if they have to spend more on new projects or cut customer bills.
Growth holdings
For the growth side of my £2k portfolio, I’d buy UK shares Games Workshop and Team17.
On the face of it, the miniature model maker and the computer games producer might seem like very different businesses. However, there’s some overlap. In recent years, Games Workshop’s income from computer games has leaped, and this could be just the start of a new era for the group. The company has very successfully managed to navigate to a new audience.
Team17 has also successfully moved across to the gaming market to increase its customer base. Further, the company’s been buying up growth through bolt-on acquisitions. The latest was the US-based gaming group StoryToys, which it bought for $26.5m earlier this month.
I like both of these companies because they have a track record of developing new products to remain relevant with their customers. As long as they keep investing, I think this will continue and support growth.
Sill, these UK shares do face some challenges. The software and gaming markets are incredibly competitive, and it’s becoming more costly to get games in front of customers.
There’s also always going to be a risk that certain games will go out of fashion. If either company overlooks these risks, their growth could come under pressure.