If I had a lump sum of £5,000 to invest right now, I would deploy this capital in a combination of high-quality growth stocks and income investments.
I think a portfolio split between these two asset classes could produce the best returns on my money. It could also put me on track to generating a passive income from my savings.
Invest for growth
When it comes to finding growth stocks for my portfolio, I will focus on technology companies. There is no denying this is the fastest growing industry today and, as the world becomes more digitally focused, I think this trend will only continue.
As such, I would buy Softcat and Computacenter for my portfolio of growth shares. These companies provide computer services to clients to help build out their technology systems.
I would buy these stocks over other technology firms because I think there will always be a need for the sort of assistance services both offer. Not every company is a specialist technology business.
However, every business does need specialist technology. Whether it be advanced cyber security systems or cloud computing software, corporations worldwide digitising their systems will need assistance.
As two of the largest companies in the country specialising in IT services, Softcat and Computacenter seem to be well-placed to capitalise on this trend.
The most considerable risk facing these companies is competition. The technology market is highly competitive, and both firms need to keep investing in their product to stay ahead.
When it comes to income investments, I will buy Phoenix Group for my portfolio. This company manages pension policies, which it acquires from other corporations. It can then use its economies of scale to reduce costs and improve cash generation. Cash generated from the assets supports Phoenix’s dividend. The stock currently supports a dividend yield of around 7%.
I would also acquire BAE Systems for my portfolio. With a dividend yield of around 5%, I am attracted to this company as an income investment. The group generates the majority of its sales from multi-billion pound contracts with governments around the world. These contracts can last for decades, which produces a guaranteed, predictable income stream for the group.
Few other businesses have the same kind of revenue visibility.
While these companies both look attractive as income investments today, I should note that dividend income is never guaranteed. Income is paid out of business profits. Therefore, if profits fall, the dividend is usually the first thing to go. That is something I will be keeping an eye on as we advance.
Even after taking this risk into account, I would be happy to add BAE and Phoenix to my £5,000 income and growth stocks portfolio, considering the qualities outlined above.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. 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.