Not many of us will enjoy the luxury of a large lump sum such as £100k to invest in FTSE 100 shares. It might happen, say, following an inheritance or pension transfer, so it’s good to be prepared.
Also, it’s fun working out how I would deploy such a sum, and I do have a bit more money at my disposal than usual, following a SIPP transfer.
I’d love to have this much to invest
As the FTSE 100 slides, now isn’t a bad time to invest. Investors are wary as interest rates climb and US debt ceiling talks drag on, but this means there are plenty of bargains out there. There’s the danger that the stock market crashes after I invest my money, shrinking my capital, so I’d avoid the temptation to splurge it all at once.
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Instead, I’d take my time and build a balanced portfolio covering different shares and sectors. My holding period is a minimum 10 years.
I’m assuming that I have cash on instant access for emergencies, plus a spread of global investment trusts, or exchange traded funds (ETFs). That allows me to focus on the FTSE 100.
I have a rule of never investing more than £5,000 in any single stock. Given my fantasy £100k, I would lift this to £10k and top up existing holdings in Legal & General Group, Lloyds Banking Group and fund manager M&G. All three offer super-high yields, yet look cheap trading at just 6.3, 5.9 and 11.6 times earnings respectively.
Next, I would shift my focus to mining stocks. They also look cheap, as investors worry about a potential US recession and long-term China slowdown, but I think this could be a buying opportunity.
FTSE 100-listed Anglo American trades at 5.6 times earnings and yielding 7.10%, while Rio Tinto trades at 7.1 times earnings and yields 8.4%. I’d invest £5k in each today, and see how things go.
I’m also struck by the British Land Company, whose shares have been hammered by fears of a commercial property meltdown. It now yields 6.42% and is valued at 12.5 times earnings. I’d stick to £5,000 though, as it’s a bit risky.
So many stocks to buy
The shadow of a house price crash hangs over builders such as Taylor Wimpey, but it’s 8.01% yield and valuation of 6.2 times earnings merits another £5k of my £100k. Then I’d dial down the risk by investing £10k in spirits giant Diageo, a solid growth and income play. I’d also pump £10k into Unilever, taking advantage of its recent share price dip, and split £10k between global services specialist Bunzl and corrugated cardboard supremo Smurfit Kappa Group.
My portfolio looks top-heavy with income stocks so I’d stick £5,000 in the risky Scottish Mortgage Investment Trust in the hope of generating long-term growth from its portfolio of late-stage tech growth prospects.
There are loads more shares I’d love to buy (I’m looking at you Barclays, GSK, SSE and Tesco) but at this point I’d take a breather. I’d feed the rest of my £100k into the market over the summer, taking advantage of any dips. It’s a lot of money, I don’t want to deploy it all at once. What would I do with my days after that?
