How should I invest £10,000 or any other amount today? Buying stocks could be a good option.
While the outlook for the global economy is uncertain in the near term, over the long run, the stock market is a tried and tested way of building wealth.
How should I invest?
There are many ways to invest in the stock market. Some people use investment funds, which pick stocks on your behalf.
These funds are split into two main groups: actively managed funds and passive funds. Actively managed funds are handled by an investment manager and tend to charge a little bit more for this service. Meanwhile, passive funds are only designed to track a stock market and are, as a result, cheaper.
Investing in funds is an excellent way for investors to gain exposure to a broad range of stocks in different sectors at the click of a button. Most online stockbrokers allow investors to buy funds, and some even offer discounts.
Another way to invest in the stock market is to buy individual stocks. This approach requires more work, but it can be more rewarding. Indeed, research shows that buying shares at low prices can generate high returns over the long term.
However, as the outlook for the global economy is highly uncertain at present, it may be best for investors to avoid certain firms and stick with high-quality businesses that have strong balance sheets. These sorts of companies are most likely to be able to weather the current uncertainty. They may even come out stronger on the other side.
The best of both worlds
The best approach for investors looking to invest a lump sum today may be to use a blend of funds and single stocks.
This would allow you to buy individual stocks, which may generate higher returns but reduce the amount of work required. By outsourcing some of the portfolio to fund managers, you may be able to increase your diversification without having to take on any extra work.
For example, small-cap companies can produce higher returns than large-cap stocks over the long run. However, investing in small-caps can be a challenging process, which is best left to the experts. As such, it may be sensible to buy a portfolio of blue-chip stocks and small-cap funds.
This would allow you to profit from the growth of these small-caps without exposing your portfolio to too much risk.
The bottom line
Now may not seem like the perfect time to invest in the stock market. Still, research shows that buying stocks at low prices can produce high total returns over the long run.
Therefore, if you have £10,000 or any other amount to invest today, using the approach outlined above may be the best way to benefit from the market’s long-term performance.
The post How should I invest £10k? appeared first on The Motley Fool UK.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 2020