The UK stock market has moved higher over the course of 2021. The main index referred to is the FTSE 100. However, when I’m looking at how to invest in the stock market in general, I can also look to the US, where some of the most popular stocks are listed. So with a free rein as to where and how I allocate my money, here’s how I’d go about putting £2,000 to work.
Picking the hot areas
One way that I’d split up the money is by looking at the hot areas right now. If momentum is with an industry, then this could bode well for 2022 and beyond. It could mean that the financial performance could improve, something that could lead to more investors picking up shares in the future.
For example, one area I think is hot is virtual reality (the metaverse). Not only has Facebook rebranded to Meta to focus on this area, but other more niche stocks are doing really well here too. I wrote about Roblox, an online gaming platform that allows users to build games within the virtual world. The share price has almost tripled since it went public at the start of this year.
Another area is renewable energy. This has been topical for a while, but the recent COP26 summit has reinforced commitment and investment from governments and corporates. I think this will mean good growth for the sector going forward, particularly for the energy providers that are making use of such things as wind and solar infrastructure.
Investing in a balanced portfolio
Having £2,000 to invest means that I can pick a broad range of stocks to include. It’s important not just to look at how to invest in the stock market, but rather the different types of stocks within the market. Some will be paying out generous dividends. Others could offer high growth prospects. Finally, some will lack volatility, but can outperform during times of uncertainty.
Personally, I’d look to split it something like 40% towards income, 40% towards growth and 20% towards defensive stocks. This should give me a balanced portfolio, achieving multiple aims and minimising risk.
But while I think this is a good starting point, things do change over time. For example, as I get closer to retirement age, I’ll probably want to focus more on getting income to replace my work. Some of the growth stocks also might be a bit too high-risk for comfort at that age. Yet by starting out with a balanced portfolio in the first place, it makes it easier to make slight tweaks over time.
Investing in the stock market now
There’s always a tendency to think about holding off putting cash in the stock market until we see a crash. In reality, no one knows when the next correction will be. As they say, time in the market beats timing the market! So when thinking long term, I’d look to follow the above pointers and start investing now.