Now could be a great time to invest £5,000, or any other amount, in UK shares for the long term. Today, I’m going to explain the approach I’d use to invest a lump sum in the market and why I think now is a good time to do so.
UK shares on offer
As the coronavirus crisis continues to rumble on, outlooks for the global economy and the stock market are highly uncertain. This might scare some investors away from the market.
However, history tells us that the best time to buy stocks is when uncertainty prevails. As such, now could be a great time to buy a basket of UK shares for the long haul. While these businesses might face further uncertainty in the near term, over the long run, I’m optimistic they can produce large total returns for investors.
For example, over the past 120 years, UK equities have produced an average annual return for investors around 7%. During this period, there were two world wars and multiple economic crashes. Despite these headwinds, UK shares still managed to grind out a positive return for investors.
The basket approach
Unfortunately, it’s difficult to tell which companies will prosper and which will struggle over the next few decades. Therefore, owning a basket of stocks could be the best approach.
Buying a selection of high-quality blue-chip shares may lead to improved performance over the long term as it reduces dependence on any one individual business.
Some examples of the types of UK shares I’d hold in a diversified portfolio include Unilever and GlaxoSmithKline. Both of these businesses offer global and product diversification. They also have strong balance sheets and support attractive dividend yields of between 3% and 5%.
As well as these blue-chip stocks, I think it could be sensible to own a selection of mid-cap companies as well. Stocks like Derwent London, which has a strong balance sheet and a portfolio of high-quality London property.
Watches of Switzerland Group is another example. The company’s focus on the luxury end of the market seems to have helped it weather the coronavirus crisis.
Another option
If you’re not comfortable buying individual shares, it’s also easy to acquire share funds with just £5k. These could help you buy a basket of UK shares at the click of a button, with no further work required.
I’d use a combination of both single stocks and funds to invest a lump sum today. I reckon this approach would allow me to combine the best of both worlds. Funds would provide diversification, while single stocks may have the potential to produce higher returns than the broader market in the long run.
Many FTSE 100 companies also support dividend yields of more than 4%, which could provide an attractive income stream in the current interest rate environment.
