Stock market recovery: how I’d invest £500 today

Rupert Hargreaves
·3-min read
Two women friends sightseeing in summer while on vacation.
Two women friends sightseeing in summer while on vacation.

Over the past few weeks, the stock market recovery has started to pick up steam. Investor sentiment has improved dramatically since the end of October as the positive clinical trial results from not one, but three potential coronavirus vaccines have shown the virus can be beaten.

What’s more, initial indications suggest the economic hit from the crisis may not be as bad as expected. Recent economic data has shown that retail sales grew 3.9% in October when compared with February 2020’s pre-pandemic level.

These figures show that while some sections of the economy are suffering, others are prospering. This should help the economic and stock market recovery in the years ahead. And against this backdrop, I think there are plenty of opportunities for investors.

Stock market recovery investments

If I had £500 or any other lump sum to invest in the market right now, there are a couple of options I would consider.

The first, and most straightforward is to buy a low-cost tracker fund. These funds are very simple to understand. The fund manager buys the underlying stock index and leaves the rest to the market. As a result, these funds tend to be cheaper to own. The best offering on the market charges less than 0.1% in fees every year.

However, the one drawback of these funds is that they only match the market’s performance. There’s no chance of them outperforming in the stock market recovery. Still, I think they’re the best way to invest a small lump sum without too much effort. Tracking an index like the FTSE 100 or FTSE 250 is a simple way to invest in the stock market.

I’d also consider owning an investment trust. These investment vehicles are a great product, which provides access to the market with an instantly diversified portfolio. They tend to take a more active approach than passive funds, so they can yield high returns in the long run.

If one isn’t interested in buying funds, I’d take a look at single stocks to profit from the stock market recovery. I’d focus on companies that should prosper no matter what the future holdings for the global economy.

Companies like retailer Ocado, which has been at the forefront of the UK tech revolution. Reckitt Benckiser is another example. This consumer goods champion may see continued sales and earnings growth for many decades to come.

Long-term focus

To profit from the stock market recovery, I’d focus on buying high-quality funds or shares that should prosper no matter what the future holds for the global economy. While some stocks like Rolls-Royce or IAG might generate higher returns in the short term, owning these firms could also lead to losses for investors if they continue to struggle. I don’t think that’s a worthwhile trade-off, so I’m avoiding these businesses in my portfolio.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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