I believe buying FTSE 100 shares is a great UK investing strategy for the long term.
But it’s not just the long term I’m interested in today. I believe a basket of these blue-chip stocks could be the perfect way for me to play the coronavirus recovery boom over the next few years as the world moves on from the pandemic and starts to rebuild.
FTSE 100 shares
There are a couple of reasons I would buy FTSE 100 shares over any other investment. These are some of the largest companies in the world, for a start. That means they have certain qualities that smaller businesses might lack.
For example, they have larger international footprints, more substantial balance sheets and better access to resources. That’s not to say that small businesses do not have these qualities, many do, but I believe larger enterprises are easier to analyse.
Larger businesses also tend to have high-quality management. This usually means they make fewer mistakes, which can be costly for investors.
Any UK investing strategy should always use a mix of both small-cap stocks and large FTSE 100 businesses. This will increase the level of diversification across the portfolio. However, such an approach may not be suitable for all investors. Investors with a lower level of risk tolerance, for example, might want to avoid smaller firms altogether.
UK investing strategy
I believe the sectors that are set to benefit most from the economic recovery after the pandemic are the materials and financial sectors.
These sectors have a heavy weighting in the FTSE 100 and UK market in general. Still, I would stick with the blue-chip index for the reasons outlined above.
FTSE 100 shares such as mining groups BHP and Rio Tinto, look well placed to benefit from rising commodity prices over the next few years as the world builds back. That said, commodity prices can be highly volatile. Therefore, these businesses are unlikely to see a steady risk-free recovery. There will likely be some bumps along the way. Due to their exposure to the global economy, I would buy them for my portfolio.
At the same time, financial businesses such as NatWest and Barclays may benefit from improving investor sentiment. Many UK investing strategies have avoided these companies over the past 12 months due to their exposure to the UK economy. Analysts believed these institutions would suffer from increased loan losses and declining demand if the pandemic caused an economic shock.
So far, the impact on these companies has been limited.
That’s not to say there won’t be any negative impact at all. If the economy deteriorates further in the months ahead, these lenders will likely suffer. Still, as a way to play the UK economic recovery, I would buy these stocks for my portfolio despite the risks they face.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. 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.