Small savings can often add up remarkably fast. During the pandemic, like many, I found myself using my car less and going on fewer holidays. I’d like to use some of that extra cash to earn some more money. And I’d aim to do so by investing in UK shares.
Making money work harder
With a £1,000 lump sum, I could put it in a bank savings account. But with interest rates so low, I’m unlikely to earn much. Instead, I’d prefer to buy some carefully chosen UK shares. Yes, there are more risks involved with shares and putting it in the bank would be safer. But I want my money to work harder for me, and I’d rather take some risk to earn a potentially much greater reward.
Often the best time to invest can be in a crisis. Shares can fall for many reasons including when the future is less certain. But timing when to buy and sell shares is very difficult. Instead, I’d just get started now. There is a well-known investment saying, “Time in the market beats timing the market”. Over time, I’d expect my companies to grow. So as long as my time horizon is long enough, I’m confident my shares can weather any short-term storms.
Investing £1,000 in UK shares
To start, I’d split my £1,000 equally into five shares. By investing in a diversified group of shares I’d aim to spread my risk and hope to benefit from a range of features. But by owning just five shares, each one should still have a meaningful impact on my total performance.
When picking the best shares, here are the features I want to look out for. UK shares can be grouped into small-cap, mid-cap, and large-cap. They can also feature different styles including growth, value, income, and quality. Finally, I’d consider spreading my shares across several sectors.
Favourite sectors
One sector that I like right now is consumer staples. Companies in this sector typically have a relatively long track record. They also tend to own popular brands that customers frequently purchase. Examples include Unilever and Diageo.
I’d also like to own some faster-growing shares, for instance from the technology sector. Although there can be more competition in this space, several UK tech stocks still look appealing. Currently, I’d consider Computacenter and Experian.
Finally, I’d want to own some dividend shares. Dividends are regular payments to shareholders from a part of the profits. Over time, these small payments can add up and can make a meaningful contribution to my total return. Financials and utilities typically have above-average dividend yields. For instance, insurance group Legal and General currently pays a 6% dividend yield. And utility provider SSE pays 5%. Both are well above the FTSE 100 average yield of 3.3%.
Overall, I’d hope to earn a decent return on my investment. There are no guarantees when it comes to shares. But by owning a selection of stocks across sectors and styles, I should be able to create a reasonably balanced portfolio for my £1,000.
Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Experian, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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