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Where I’d invest £10k in UK shares today

Edward Sheldon, CFA
·3-min read
Businessmen teamwork brainstorming meeting.
Businessmen teamwork brainstorming meeting.

If I was investing £10,000 in UK shares today, I’d have plenty of options. The UK stock market offers everything from rock-solid, large-cap multinational companies to exciting small-cap growth stocks.

Here’s a look at where I’d invest if I was putting £10,000 into UK shares right now.

Strong and stable UK shares for capital preservation

I’d start by allocating some of my capital to strong and stable dividend-paying FTSE 100 businesses.

The reason I’d start with these types of stocks is that economic uncertainty is very high right now. So, it’s sensible to think about risk, not just return. After all, one of the keys to being a successful investor is preserving capital. Just ask Warren Buffett. He says the number-one rule in investing is to not lose money.

Stocks I’d consider for this part of my £10k investment would include the likes of Unilever, Diageo, Reckitt Benckiser, and Sage. All of these UK stocks have excellent long-term growth track records and pay regular dividends. They’re also generally not too volatile because they tend to generate relatively consistent revenues.

I’d invest around 50-60% of my investment in these types of UK shares. This should protect my capital and generate regular dividends that I can reinvest.

Growth stocks for healthy gains

I’d also want some exposure to growth stocks to boost my returns. Mid-caps can be a good way to pick up growth, in my view. Companies in this area of the market are generally well established. However, many are still growing quickly. This means that, over the long run, they can potentially provide very attractive returns.

One sector I like for long-term growth is technology. Given the digital revolution we’re currently experiencing, many UK technology stocks are growing rapidly at present.

Names I like in this space include Softcat, GB Group, Keywords Studios, and Gamma Communications. All of these UK shares have done well this year. Yet I think there’s plenty of growth to come.

Softcat, for example, should benefit as businesses transform themselves digitally. GB Group, meanwhile, should grow as identity theft becomes more of a problem. Keywords Studios should benefit from the growth of video gaming. Gamma should continue to take advantage of the work-from-home trend.

From my £10k investment, I’d invest around 25-35% of my capital in these types of growth stocks.

Small companies for explosive growth

Finally, I’d allocate a little bit of capital to small-cap growth stocks. These are riskier. However, they can also provide more explosive returns. The key, in my view, is to focus on companies already profitable and to spread capital over a few different companies to limit stock-specific risk.

One company I like a lot in this area of the market is dotDigital. It’s a fast-growing marketing automation company that’s benefitting from the growth of e-commerce. Another I like here is Alpha FX. It helps businesses with foreign exchange hedging.

I’d allocate about 10-15% of my investment to these kinds of smaller, high-growth UK shares.

A solid mix of UK shares

Overall, this kind of strategy should provide me with a nice balance of UK shares. The large-caps should provide portfolio protection, while the growth stocks and small-caps should provide long-term growth.

The post Where I’d invest £10k in UK shares today appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Unilever, Diageo, Reckitt Benckiser, Sage, Keywords Studios, Gamma Communications, Softcat, GB Group, dotDigital, and Alpha FX. The Motley Fool UK has recommended Alpha FX, Diageo, dotDigital Group, Keywords Studios, Sage Group, Softcat, 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.

Motley Fool UK 2020