If I had a lump sum of £100,000 to start investing in the stock market today, I would look to take advantage of some of the attractive opportunities beginning to emerge.
As the outlook for the economy has become more uncertain over the past couple of months, shares in some of the market’s fastest-growing stocks have faced significant selling pressure.
While I think some of these companies were overvalued in the first place, I believe others have excellent growth potential. As such, I think the market is throwing the baby out with the bathwater. I would try to take advantage of this trend.
What’s more, as well as a portfolio of individual stocks, I would also acquire a range of undervalued growth funds. But I would not risk everything on growth investments. I would acquire some defensive plays as well.
Picking stocks for a portfolio
The great thing about being able to start investing with a large lump sum like £100,000 is that it allows for significant diversification.
For example, I can invest 10% of the portfolio in some speculative growth stocks that I believe have excellent growth potential. With this risk capital, the three companies I would acquire are Ocado, Just Eat and Darktrace.
I believe each one of these growth stocks has a unique selling point. Ocado is revolutionising the grocery sector with robots. Just Eat has a leading position in the food delivery market, and Darktrace provides a unique artificial intelligence solution for the cyber security industry.
While these stocks have faced selling pressure recently, I think their competitive advantages should help them outperform the competition as we advance.
Having said that, picking individual stocks can be a risky process. Even the professionals get it wrong on a regular basis.
Start investing with growth funds
I would also invest around 30% of my money in growth funds. Two I would pick are the Scottish Mortgage Investment Trust and the Blue Whale Growth Fund. Both are looking for international growth stocks that exhibit unique qualities.
Scottish Mortgage also has the ability to invest in private companies. By adding these funds to my portfolio, I think I can increase my exposure to international growth stocks without doing any extra work.
The relatively high cost of this approach is its major downside. Each of these funds charges a management fee, which will eat into my returns in the long run.
I would acquire the Personal Assets Trust for my portfolio when it comes to defensive investments. This trust has around 50% of its assets invested in inflation-linked assets, which should provide some protection in the current environment.
I would invest approximately 20% of my portfolio in defensive equities like Personal Assets. A risk of using this approach is that if the economy outperforms, defensive investments could underwhelm.
With around 60% of my £100k portfolio invested in the above opportunities, I would spread the remaining 40% across index funds. These funds are only designed to track the market. Therefore, they will not outperform the market.
Still, they are a great asset to use to start investing. They allow investors to take part in market growth without picking individual stocks.