If I had a lump sum of £10,000 to invest today, I would take a cautious approach to investing my money.
The outlook for the global economy is both encouraging and troubling. The economy is recovering from the pandemic, but headwinds such as the supply chain crisis, inflation, and a worker shortage are all causing problems.
Some companies will be able to deal with the challenges better than others. Some countries may also have more flexibility to deal with rising prices and import disruption.
The UK is more exposed than most. Brexit trade headwinds and the fact the country imports more than it exports presents a unique set of challenges for the region.
With this being the case, I would invest some of my £10,000 lump sum outside the UK.
Invest outside the UK
I think the best way to invest this cash would be to buy a global investment trust. As I am not particularly comfortable investing in different markets around the world, I would be happy to outsource this task.
Using this approach also means I do not have to worry about foreign exchange or finding the right broker to deal in international securities.
One option I would be happy to buy for my portfolio is the Baillie Gifford US Growth Trust. This trust owns the highest-conviction US names of the Baillie Gifford investment team, which has far more experience in picking stocks than I do. I would be happy to allocate around 25% of my investment to this trust, considering its track record and diversification.
I would also invest in a UK trust to build exposure to my home market, focusing on a trust that targets small-cap stocks. Once again this is a section of the market where I am not particularly confident finding opportunities, so I would be happy to outsource idea generation.
The BlackRock Throgmorton Trust aims to find the next UK growth champions. It searches in the small-cap section of the market to find these opportunities. The firm has a great track record of finding these gems, having outperformed its benchmark for the past few years.
The one downside of using investment trusts is the fact that they charge a management fee. This could eat away at my returns in the long run, especially if the trusts underperform the market. In this situation, I may be better off only buying individual stocks.
I would allocate around 50% of my portfolio to trusts, and I would invest the rest in individual stocks.
Single stocks
I would try and pick corporate champions, companies with strong balance sheets and impressive potential.
A couple of examples include AstraZeneca and Rightmove. I think both of these organisations have a substantial competitive advantage and a long runway for growth ahead of them.
Challenges they could face include competition and higher costs in the inflationary environment. These headwinds could hit growth.
I would be happy to invest half my £10,000 portfolio in individual stocks and shares despite these risks. Combined with the trusts outlined above, I reckon this approach will improve my chances of being able to grow my nest egg.
