For fairly obvious reasons, the FTSE 100 has been rather volatile lately. Since almost hitting the 7,700 mark in February, the index of the UK’s largest stocks has sunk back below 7,000. As I type this, it’s recovered to around 7,300.
Of course, as a private investor with a Foolish mentality of growing wealth over the long term, I can/should take such swings in my stride. With this in mind, here’s how would I invest £20,000 — the maximum annual Stocks and Shares ISA allowance today.
FTSE 100: buy the best
Rather than snatching at anything that’s fallen heavily, it’s important to invest according to my overall strategy. For me, this means only buying the best growth stocks around. The former approach might pay off if I were able to consistently predict where share prices will go next. Since I know I can’t do this, however, I prefer to focus on businesses with great fundamentals and outlooks instead.
One thing I really like is when a company possesses something that gives it a competitive advantage over rivals. An example that continues to jump out at me from the FTSE 100 is a stock like Diageo. Regardless of geopolitical events or monetary policy, I can be pretty sure that people will still want to drink premium spirits such as Captain Morgan, Johnnie Walker, and Smirnoff. It’s this portfolio of ‘sticky’ brands that also makes Marmite-maker Unilever a strong contender. Luxury product maker Burberry earns a spot for a similar reason.
Another thing I like are growth stocks that have a near-monopoly in their respective markets. As such, both online vehicle marketplace Auto Trader and property portal Rightmove make the cut. This is despite not being ‘cheap’ in the traditional sense (forward P/Es of 27 and 28, respectively).
Health and safety equipment manufacturer Halma would be another must-buy. Given ongoing regulation, I have little concern over its ability to continue growing. As a sign of just how reliable it is, the Amersham-based business has increased its annual dividend by 5% or more for the last 42 years! This makes the 20% fall in the share price in 2022 look like a wonderful opportunity to me.
Since £20,000 will only go so far, the last position I’d take would be in Scottish Mortgage Investment Trust. While this FTSE 100 member has been hit hard by the rotation into value stocks seen in 2022, it’s still a great way of accessing disruptive companies from both the private and public space.
No guarantees
As mentioned earlier, this strategy suits me personally. However, it does require me to have an interest in regularly following company news. If this weren’t the case, I’d probably be far more comfortable owning an exchange-traded fund that tracks the FTSE 100 index. In this scenario, I won’t outperform the market but nor will I underperform it either.
Another thing worth highlighting is that investing will never be risk-free, regardless of approach. I can’t assume that all of my picks will work out. That’s why it’s important for me to spread my cash around different sorts of growth stocks as I have above.
What I do feel more confident about, however, is that investing when sentiment is weak is likely to pay off eventually. So, regardless of whether I have £20,000 or a smaller amount, I’d have no hesitation in ‘buying the dip’ today.
Paul Summers owns shares in Burberry and Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Auto Trader, Burberry, Diageo, Halma, Rightmove, 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.
