I’ve lost count of the times I’ve heard people say that investing in UK shares is just like gambling. They say it’s like playing the slot machines or some online gaming app, because you never know which stocks will win, and which will lose.
There are some similarities, I admit. Investing in UK shares can be risky. Success is not guaranteed. Winners and losers are hard to identify in advance. But here’s one big difference. You almost certainly won’t make a million on the Lottery or via slot machines. You could make it on the stock market, though, and with only average luck.
Too many investors approach investing in UK shares as if they were at the racetrack or in Vegas. They look to make a killing. Inevitably, disappointment ensues. Every start-up dreams of being the next Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN), but for each that succeeds, countless thousands fail.
Don’t gamble, invest If you go trawling through the message boards looking for the next big thing, or take tips from a friend who knows, then yes, you are taking a massive punt. That’s not how I would invest in UK shares. Instead, I would start by building a balanced portfolio of relatively low-risk FTSE 100 stocks. If I had, say, £5k to invest, I would spread it between five blue-chips to generate capital growth and dividend income. If one or two disappoint, the others will hopefully compensate by powering on.
You should never invest with the aim of getting rich quick. It’s not going to happen. Done properly, building wealth from investing in UK shares takes years, decades. You can make a million, if you stick with it. Say you invested £500 a month from age 25 and made an average total return of 6.5% a year. By age 65 you would have £1.12m.
That may not be as exciting as backing a 100-1 outsider on the Grand National, but your chances of success are far greater.
Here’s how I’d invest in UK shares Investors who try to get rich quick usually become poor – and fast. Anybody who invested £1,000 into US stock Eastman Kodak after it spiked 879.8% last month would have just £220 today. The faster they come, the harder they fall.
Instead, I would search the FTSE 100 for companies that are nicely placed to withstand current pandemic uncertainty. You could start with a solid pharmaceutical stock, such as AstraZeneca or GlaxoSmithKline.
I would match those with another defensive dividend stock, such as utilities National Grid (LON:NG) or Severn Trent (LON:SVT). Then maybe a consumer income and growth stock, such as spirits giant Diageo (LON:DGE), household goods firm Unilever (LON:ULVR) or telecoms business Vodafone (LON:VOD). Or try one of those boring companies you never hear about but do a marvellous job of building investor wealth, such as Ashtead Group (LON:AHT), Bunzl (LON:BNZL), Informa, Phoenix Group Holdings or Rio Tinto (LON:RIO).
Investing in solid FTSE 100 stocks like these is a better way to make a million than having a flutter on some rank outsider you read about on a forum. I would put good money on it.
The post Investing in UK shares isn’t gambling. I reckon you could still make a million though appeared first on The Motley Fool UK.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Apple. The Motley Fool UK has recommended Diageo, GlaxoSmithKline, and Unilever and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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
First published on The Motley Fool
