If I had a pound for every time I heard someone refer to the cost of living crisis, I wouldn’t have any problem paying my bills. The squeeze on real incomes is bad at the moment. But investing in UK stocks gives me a multitude of different ways that I can try and beat the pinch on cash right now.
Dividend income options
One way that helps me to generate extra cash fairly quickly is investing in dividend stocks. The benefit of dividend shares is that the money I receive can either be reinvested or simply spent on whatever I need. Ideally, I’d like to put the dividend back in the market, to help me grow my investment pot. But it gives me the flexibility to take the cash and spend it on anything.
Given that some businesses are struggling (not just consumers), I want to be careful about the companies I decide to pick. I recently wrote about how I’d allocate my money to income shares. The main points I focused on were spreading my money over several businesses, and targeting a yield in the 4%-7% range. I feel this is the best way to try and generate sustainable income not just for this year but for years to come.
Defensive and growth options
My second and third ways are to target specific types of UK stocks to park my cash in. Defensive stocks are those that tend to outperform the market in general during difficult times. Most defensive stocks relate to some kind of essential goods or services. This includes utility providers and supermarkets.
On the other hand, I can also allocate some money to growth shares. These exciting companies have underperformed so far this year. I think this makes it a good time to pick up some household names at cheap prices. Over the course of the next year or so, I’d expect a bounce-back here.
In both cases, I can try to offset the impact of the cost of living crisis by benefiting from higher share prices. If this is realised, then when I eventually come to sell the stock, I’ll get back my capital as well as profit on top. I can then decide how best to use this extra money in my account.
Investing in UK stocks for the good times
The final way I’m trying to deal with the crisis is to cut down on unnecessary purchases. Sometimes I spend too much simply because I have money in my account. To try and get out of this habit, putting money away in my Stocks and Shares ISA each month can help me. Not only will it stop me from overspending, but it’ll help me to build an investment pot that can grow in years to come.
In the future, economic cycles dictate that we will eventually be back in a boom period. At that point, I’ll be glad to have started investing years before at (hopefully) lower prices than where they will be.