A strategy to invest £20k in good value shares may not be especially popular at the present time. After all, assets such as gold and Bitcoin are currently en vogue among investors. Their price rises and bullish sentiment surrounding them at an uncertain time for the economy may mean they outperform the stock market in the short run.
However, a strategy to invest money in high-quality companies at attractive prices could produce stronger returns in the long run. It could provide larger margins of safety, lower risks and greater return prospects.
Investing money in stocks with growth potential
Companies with encouraging growth prospects could be a sound place to invest £20k, or any other amount, in 2021. For example, home improvements retail giant Kingfisher could enjoy strong prospects in the coming years due to its online presence. Furthermore, many people are now working from home. This could increase demand for home offices, as well as shift spending from leisure items to DIY.
Similarly, alcoholic drinks giant Diageo may enjoy strong operating conditions in the long run. The company has used the global economic slowdown to streamline its business model so it’s now more efficient. It has also made acquisitions to give it a stronger position within key premium spirits segments. This may increase its market share and lead to higher returns in the coming years.
A plan to invest £20k in stocks with recovery potential
Struggling shares that have turnaround potential may also have higher return profiles than gold or Bitcoin in the long run. Companies such as banking major HSBC are experiencing tough operating conditions caused by low interest rates and weak consumer confidence. However, its plans to cut costs and leverage its position in faster-growing economies across Asia may prompt improving performance.
Meanwhile, housebuilders such as Vistry could outperform investor expectations when seeking to invest £20k. The company may suffer some disruption in the short run due to coronavirus restrictions. However, low interest rates and a limited supply of new homes may lead to relatively resilient operating conditions. And that should allow it to deliver rising profitability and a higher share price.
Avoiding the high prices of gold and Bitcoin in 2021
Investing money in gold or Bitcoin could be a profitable move in the short run. Their prices may rise due to recent momentum and investor sentiment. However, paying a high price for any asset may limit the amount of profit available due to a lack of a margin of safety. This may result in disappointing returns – especially compared to today’s undervalued shares.
Therefore, avoiding gold and Bitcoin in favour of undervalued shares could be a good idea when seeking to invest £20k in 2021. The stock market’s recovery potential, and a likely return to growth for the world economy, could boost share prices in many sectors. In turn, that lifts the portfolio valuations of equity investors over the coming years.
The post Forget gold and Bitcoin. Here’s how I’d invest £20k in 2021 appeared first on The Motley Fool UK.
Peter Stephens owns shares of Diageo and HSBC Holdings. The Motley Fool UK has recommended Diageo and HSBC Holdings. 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.
Motley Fool UK 2021