How I’d invest £20,000 in UK shares in September

Stack of new bank notes

The UK stock market has been on a roll, with the FTSE 100 index of leading shares growing by 17% over the past year. That is an impressive return, but I am increasingly concerned that some share valuations look hard to justify. If I wanted to put £20,000 to work in UK shares this month, here’s how I would do it.

Balance between growth and income

I would split my portfolio so it had both growth and income choices. As some growth shares have started to look expensive, I would focus more on income shares. I’d put £12,000 to work in income shares and £8,000 into growth shares, for a 60-40 split.

£20,000 is substantial enough that I could diversify across 10 UK shares without being crippled by dealing fees. So I would put £2,000 into each share. As well as choosing different companies, I would invest in a variety of business sectors.

UK shares I’d pick for growth

With £8,000 aimed at growth prospects, I’d put £2,000 into Sir Martin Sorrell’s current marketing network S4 Capital and the same into his previous one, WPP. Both these UK shares offer exposure to consumer recovery. That could boost revenues strongly over the next several years, although any downturn in ad spend could hurt both companies.

Another consumer share I think has strong growth prospects is retailer JD Sports, into which I would invest £2,000. The price is near an all-time high, but I find its compelling retail strategy and proven ability to grow compelling. Expansion overseas risks lower profit margins as it enters highly competitive markets.

I’d also earmark £2,000 for Computacenter. The shift to hybrid working is unleashing substantial tech spend by companies. I see that as positive for Computacenter, although there is a risk that a spending surge today could mean reduced revenues in the years to come.

UK dividend shares I’d buy in September

£12,000 would allow me to pick six income choices.

First I’d plump for the juicy yields of the tobacco sector. British American Tobacco offers 7.9% and John Player Special owner Imperial Brands is yielding 8.9%. I’d buy both for my portfolio, recognising the risk that declining cigarette usage could lead to falling profits.

Next I’d consider UK shares in financial services. I’d choose insurer and financial services provider Legal & General. Its yield is 6.4% and is set to rise in coming years, although no dividend is ever assured. I like the company’s strong brand awareness and long-term business growth prospects. But price competition in insurance could hurt margins. My second financial services pick would be M&G. The investment manager yields 9.1%. I think its broad client base and established brand can help it perform well in future. But while it manages large sums, the profit margins can be thin. That is a risk to future profitability if revenues fall.

I’d also put £2,000 into the Income and Growth venture capital trust. While the dividend moves around a lot, the interim payout this year of 5p already equates to a 5.7% yield. The company offers me exposure to early stage investments in unlisted companies. That also brings risks, though: such firms have limited trading history and some may turn out not to be viable businesses. I’d put the last £2,000 into National Grid, a key UK utility. It yields 5.2%. One risk is changing electricity consumption patterns requiring heavy capital expenditure. That could hurt profits.

The post How I’d invest £20,000 in UK shares in September appeared first on The Motley Fool UK.

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Christopher Ruane owns shares in British American Tobacco, Imperial Brands and S4 Capital. The Motley Fool UK has recommended British American Tobacco, Imperial Brands, and National Grid. 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.