Contractors' Questions: Which stock to buy with £2,000 for my SIPP?
Contractor’s Question: Thanks to more good investment decisions than bad with my SIPP, I’ve got £2,000 to invest in company stocks. Usually I just reinvest but I’d like to add an eighth investment in a high-growth or if not, a safe and stable sector.
Are there any firms in such sectors which I could consider in the contractor/freelance economy? I’d like to invest in a business I’m related to by career or business activity.
Expert’s Answer: It’s great that you’ve built up a pension pot and have got some spare cash to invest too. It definitely makes sense to add some stocks to your portfolio too. I’d say that at just seven stocks, you have too concentrated a portfolio. If one of those investments goes wrong, it’s going to take a heavy toll on your whole portfolio.
You might consider investing your £2,000 in a mutual fund, which will give you greater diversification within your SIPP. Otherwise I’d suggest picking a company which operates in a different area to the ones which you already have and is therefore less likely to be affected by the same factors.
But I’d caution against basing your portfolio around your own industry. This is an attractive proposition for many people because it’s an area they understand very well. However the problem is your portfolio can get skewed toward this area.
Let’s also remember your day-to-day income is dependent upon this industry, so investing your SIPP in it doubles up your risk. That’s not to say you shouldn’t invest in it at all, but just make sure it plays a proportionate part in your overall portfolio. Indeed, that goes for any investment -- diversification isn’t that much fun, but when you really need it, you’ll be glad you’ve got it.
The expert was Laith Khalaf, senior analyst at Hargreaves Lansdown.