As the end of year approaches, I might be due a bonus from work. I could find myself with £2,000 or so that I want to invest in the market. If that’s the case, then this is how I’d allocate the money into the top stocks at the moment.
Setting my risk tolerance
To begin with, I’d think about the risk I want to take on with the money. This depends on the current make up of my existing portfolio. If I’m looking to try to increase my average annual return, I’d go for a more ambitious and risky set of stocks. Usually, this risk allows the potential for higher returns than other, safer stocks.
On the other hand, I might want to buy top stocks for my defensive portfolio. It’s impossible to predict the future, but I can look to invest in conservative ideas and stocks that should perform better than the broader index if we see another market crash.
Once I’ve decided the risk level I’m happy to go with, I can choose the specific companies.
Top stocks for growth
To increase my growth portfolio, I’d look for a mix of stocks based on both market capitalisation and geography. The FTSE 100 does offer some good growth stocks, but I need to remember that this is a mix of the largest companies listed in the UK. So I think I’m better off looking at the FTSE 250 and below to find some top stocks that have the potential for serous growth. I’d specifically look at buying renewable energy stocks, such as the Renewables Infrastructure Group.
I also want to look across the pond to the US. The US equity markets have smashed it so far this year. Recently, I wrote that the indices do look expensive. However, I’d still consider buying some selective stocks that offer value. For example, I think the IPO this week of Rivian could be an attractive buy.
A more conservative approach
If I’m looking to increase my defensive holdings I’d stick to top stocks within the FTSE 100. I’d look to buy half a dozen firms, but limit my exposure to any one sector or theme.
Therefore, I’d pick one or two stocks from areas including utilities, supermarkets, defense, healthcare, and financial services. The ones picked can still offer me good growth prospects or income payments, but should carry less risk than the aggressive growth ideas mentioned above.
For example, AstraZeneca is a company that has a solid track record of share price returns, coupled with relatively low volatility. Given the size and nature of the business, it should be able to weather any economic storm that comes through. This makes it an appealing stock to own if I’m wanting to buy lower risk stocks.
Overall, the attributes that make up a top stock are varied. It’s subjective, and dependent on what my goals are or what level of risk I’m wanting to take on. Ultimately, with £2k to invest, I can find ideas to suit my requirements.