After more than 20 years of investing, my portfolio is looking pretty healthy. I’m confident that when the time comes to retire (in 20 years, or so), I’ll have built up considerable wealth.
Having said that, if I could start my investing journey all over again, I’d probably do things a little differently.
I’d speculate less (I lost a lot of money in my late 20s in mining stocks) and focus more on capital preservation. I’d also focus more on dominant, long-term growth trends.
With that in mind, here’s a look at how I’d invest £20,000 for the long term from scratch today.
How I’d invest my first £20,000 today
The first thing I’d do, if I was starting my investing journey today, is look for a tax-efficient investment account. I’d want to pay as little tax on my investments as possible.
An obvious pick here would be a Stocks and Shares ISA. With this kind of account, I could invest the whole £20,000, and all capital gains and investment income would be tax-free. This could potentially save me a lot of money on tax down the line.
Funds for diversification
The next thing I’d do is invest around half the £20,000 in global equity funds. I’d do this to build a nice solid base for my portfolio.
Funds offer a high level of diversification so they’d help me on the capital preservation front. I’d pick a mix of actively-managed funds and passive funds to further diversify my money, and go for about four in total (£2,500 in each).
One actively-managed fund I’d definitely invest in is Fundsmith. This has an excellent track record having returned about 17% per year since its inception in 2010 (although past performance is not an indicator of future performance). It also tends to hold up quite well when markets are volatile because it invests in high-quality companies.
A handful of world-class stocks
My next move would be to invest around £6,000 in a handful of world-class companies. Here, I’d look for companies that are very dominant and almost guaranteed to get much bigger in the years ahead.
Four that I think could work well for me here are Apple, Microsoft, Alphabet (Google) and Amazon. All are extremely dominant in today’s world and look poised for strong growth in the long run.
Of course, these are all technology companies which adds a bit of risk. Tech stocks can be quite volatile at times. They also trade at higher valuations. I’d be looking to hold onto them for the long term however, so I wouldn’t be too concerned about short-term volatility.
High-growth opportunities
Finally, with the remaining £4,000, I’d take a ‘thematic’ approach and look to invest in a handful of stocks, or exchange-traded funds (ETFs), that are focused on niche markets with strong long-term growth potential.
Themes I might focus on include artificial intelligence, robotics/automation, cybersecurity, electronic payments, healthcare, and renewable energy. All of these industries look set for strong growth in the years ahead.
I’d expect this part of my portfolio to be higher risk. However, in the long run, it could potentially boost my investment returns.
I’ll also point out that I wouldn’t invest my £20,000 all at once. To reduce the risk of investing at a market high, I’d drip-feed my money into the market over a period of six months to a year.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Ed Sheldon owns Alphabet (C shares), Amazon, Apple, and Microsoft and has a position in Fundsmith. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, and Microsoft. 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.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
