The stock market crash makes now a great time to invest in FTSE 100 shares, but also a scary one. While many top stocks are trading at reduced valuations, investors will be nervous. We haven’t seen the back of Covid-19.
If I had £100,000 to invest, I’d approach today’s market with caution. Not too much caution though, as that could also backfire.
For example, you could keep your £100,000 in cash, rather than investing in FTSE 100 shares. Given today’s near-zero savings rates, your money is unlikely to grow in real terms. After inflation, its spending power could fall.
£100,000 to invest? Take your time FTSE 100 shares are more volatile than cash, but history shows that, in the longer run, they deliver a far superior return. Successful investors buy shares when they’re cheap, then hold them for the long-term. That gives time for markets to recover, and your reinvested dividends to compound in value.
You should avoid stocks if you may need the money within the next five years though. Older investors should take fewer risks as they’ve less time to recoup short-term losses. Younger ones should go for it.
Let’s say you’re putting all your £100,000 into FTSE 100 shares. I wouldn’t throw the full amount into today’s market. That way you risk a short-term shock, if the market crashes the next day.
Instead, I’d feed it into the market over the rest of the year, taking advantage of any dips. Today, the FTSE 100 has fallen below 6,000. It’s down almost 25% over the year. Many investors are wary of buying shares when prices are falling but, in fact, this is the perfect time to invest. You’ll pick up more for your money as a result.
What you need is a diversified spread of different FTSE 100 shares to balance your risks. I’d start by playing safe. You could divided, say, £5,000 of your £100,000 between a couple of lower-risk dividend stocks. This could be a utility like National Grid (LON:NG) or United Utilities, or a pharmaceutical company like AstraZeneca or GlaxoSmithKline.
You can then move up the risk scale with your next £5,000 chunk. Household goods giant Unilever (LON:ULVR), global spirits group Diageo (LON:DGE) and cigarette maker British American Tobacco (LON:BATS) look pretty solid to me. They should also see steady demand for their products, even in a recession.
Some great FTSE 100 shares out there Other companies I’d consider for your next (slightly riskier) chunk might include asset manager and insurer Legal & General Group (LON:LGEN), outsourcer Bunzl (LON:BNZL), data specialist Experian, telecoms giant Vodafone (LON:VOD), or consolidator Phoenix Group Holdings.
Commodities giants BHP Group and Rio Tinto (LON:RIO) are also worth a look. As are housebuilders, such as Barratt Developments (LON:BDEV) and Taylor Wimpey (LON:TW).
Once you’re feeling confident, you might take a punt on a few high-risk stocks, targeting FTSE 100 shares that may bounce back when the pandemic is finally tamed. Airlines, hotels and cruise operators could fly, when the economy takes off. Personally, I’m wary.
You should only take a that level of risk with a tiny proportion of your £100,000.
The post £100,000 to invest in FTSE 100 shares? Here’s what I’d do now to get rich and retire early appeared first on The Motley Fool UK.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Experian, GlaxoSmithKline, 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