Stock market investing: here’s where I’d invest £3,000 today

Young lady working from home office during coronavirus pandemic.

I firmly believe that stock market investing is the best way to increase my wealth in the long run.

However, this strategy might not be suitable for all investors. Investing in the stock market can be risky, especially when picking individual stocks and shares. 

Buying investments with only a limited understanding of them is a quick way to lose money.

What’s more, buying speculative investments, such as penny shares and unprofitable businesses, may also be a fast route to losses.

With that in mind, if I had to invest £3,000 today, I would focus on blue-chip stocks and investment funds. I think this combination would provide the perfect blend of defensive income and exposure to high-growth investments.

Stock market investing via a fund

When it comes to investment funds, I would buy funds that provide exposure to sections of the market where I have little to no exposure or experience.

One example is the Henderson Smaller Companies Investment Trust. I already own this trust in my portfolio and would happily buy more of it. The fund holds a portfolio of small and medium-sized publicly traded UK businesses. The top three holdings are Impax Asset Management, Future, and Bellway.

Overall, all the fund holds 108 different holdings. I think this provides a highly diversified portfolio of high-growth stocks. It also includes exposure to small-cap stocks, which can be risky investments, and I don’t necessarily have the time to research them.

The primary risk of investing in the market through a fund like this is that the trust’s managers will pick the wrong stocks. This could lead to underperformance and even investment losses. 

Still, I’d buy the trust for my £3,000 portfolio considering its diversification and growth stock exposure. 

Blue-chip stocks 

As well as the trust outlined above, I would also buy GlaxoSmithKline and British American Tobacco for my £3,000 portfolio.

Both of these companies are blue-chip stocks and dividend champions. Glaxo offers a yield of around 5% at the time of writing. Meanwhile, British American provides a yield of about 7%. 

Unfortunately, these dividend yields are not set in stone. Falling cigarette consumption worldwide could put pressure on British American’s payout, while Glaxo has stated it will reduce its dividend after spinning off its consumer healthcare arm. 

Nevertheless, I expect both companies to remain income champions. Glaxo’s cash flows are underpinned by sales from its portfolio of pharmaceutical products. And British Ameican is a cash cow. I think it will remain so for the next few years. 

This is why I believe both of these enterprises would fit nicely alongside Henderson in my £3,000. The combination of income from the two blue-chips and growth from the investment trust could help me navigate the complex world of stock market investing. 

The post Stock market investing: here’s where I’d invest £3,000 today appeared first on The Motley Fool UK.

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Rupert Hargreaves owns shares of British American Tobacco and Henderson Smaller Companies Inv Trust. The Motley Fool UK has recommended British American Tobacco and GlaxoSmithKline. 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.