I’ve been investing for some time now, but if I was starting from scratch today with £5,000, how would I invest it?
Asking an investor this question is nearly guaranteed to give you hundreds, if not thousands of different answers. This is because every single person has a different set of influences in their lives, different levels of risk tolerance and different circles of competence. Given the current climate — worries about inflation, interest rates and potential market crashes — it can be even more daunting. But there are still lots of excellent companies that I’d be happy to invest in.
Managing investment risk
All investing comes with risks, even without considering the possible ones listed above. So, the first step I would take is to divide my funds to create a portfolio with high-risk, medium-risk and low-risk investments. These would not be equal portions, however. Higher-risk investments naturally have the possibility of generating the largest returns, but they also have the greatest chance of going to zero.
To this end, I would allocate just £1,000 to high risk, £2,000 to medium risk and £2,000 to low risk.
Low-risk stocks
For my low-risk portion of the portfolio, I would choose Lloyds Bank and Tesco. Both of these companies pay a small dividend (2.35% for Lloyds/3.31% for Tesco) and have some key fundamentals in their favour. Lloyds has great brand recognition and has been making cuts to its operation costs, while Tesco provides a vital service that will continue to generate revenue even in tough times. Neither is perfect and both saw their share price tumble in the March 2020 crash, but Tesco’s has recovered and possible interest-rate increases could make Lloyds even more profitable.
Medium risk
I’ve mentioned before how impressed I am with Wise’s performance over the pandemic years. Despite international lockdowns, the online payment service company has managed to quadruple its revenue and increase its customer base by a further four million people. Wise is a new company to the LSE, and the share price has had some growing pains. It fell from a high of 1,140p in September down to 606p at time of writing. With a price-to-earnings ratio of 5.35, this strikes me as a great time to add it to my portfolio. The company does have very small profit margins, however, which could come back to bite it if it’s unable to grow further. But such are the risks of investing.
High risk
Argo Blockchain is a tricky one. I personally think that cryptocurrencies like Bitcoin are here to stay and that companies like Argo, which ‘mine’ them, stand to benefit hugely over the long run. But it’s still early days yet in the sector, and there’s no way of knowing who will survive. Argo is profitable and has been increasing both revenue and profits since 2020. But its main source of income is from the Bitcoin it mines, and it’s a highly volatile asset.
Investing for the long term
The most important thing I have to keep in mind is that this is all in the service of the long term. The goal is to still be holding these shares in 20, 30 or even 40 years’ time. These shares could all crash tomorrow, but if I keep a hold of them, I believe they are almost bound to be worth more in the future.