If I had £1,000 to start investing with today, I would build as much diversification into my portfolio as possible.
I think the world is currently going through a period of immense change. The combinations of climate change, technological change, and the pandemic have made it a challenging environment for investors.
Further, some analysts believe the chances of a stock market crash are growing as central banks worldwide start to increase interest rates and slow quantitative easing policies.
With so much uncertainty, I want to own a diverse portfolio of equities, to help me navigate the current environment and potential upcoming storm, if there is one.
Start investing today
The easiest way to start investing is to buy a low-cost index tracker fund. A global index tracker fund, such as the Fidelity Index World, gives investors exposure to all the major stock markets globally at the click of a button.
This is a very straightforward strategy, but as an index tracker only replicates the performance of global markets, it will not help me protect my portfolio from volatility. If markets suddenly lurches lower by 20%, the fund’s value will fall by the same amount.
As such, I would only allocate around a third of my £1,000 portfolio to this investment. This would allow me to build exposure to global equities without taking on too much risk.
In the rest of the portfolio, I would try to include assets that may offer some protection against uncertainty.
Two examples are the Secure Income REIT and Supermarket Income REIT. These property investment companies focus on buying commercial properties with high-quality tenants on long-term leases with annual rent uplifts. The goal is to produce a steady stream of income from top-quality property.
I believe these qualities give these companies a defensive nature. That is why I would allocate around 20% of my £1,000 portfolio to these property investments. One of the major risks they could have to deal with is higher interest rates. This could increase the cost of their debt and impact property values.
Favourite companies
With 50% of my portfolio allocated towards global equities and more defensive property, I would select a basket of my favourite stocks for the remainder.
I would buy Diageo for its global footprint. I would also buy Team17 as I am impressed by its portfolio with games and historical growth. By acquiring these shares in different sectors, I think I will increase the diversification in my portfolio.
That said, I am also aware that picking stocks can be tricky. Neither of these companies is guaranteed to produce returns for my portfolio. Therefore, this strategy might not be suitable for all investors.
Using the approach above, I can successfully navigate to future market turbulence while priming my portfolio for growth in the long run.