Making a million could be easier if you invest like Neil Woodford

Despite a difficult year, Neil Woodford has a long track record of success.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

This year has been one to forget for Neil Woodford. His performance has been relatively disappointing, and it has caused many investors to question his ability. However, no investor can outperform their benchmark all of the time. And in his career, he has generally delivered high returns for his investors. That’s why investing like him could make becoming an investing millionaire much easier.

Defensive income

Neil Woodford is primarily known as a defensive income investor. This means that he has often focused in the past on stocks which offer a mix of relatively impressive income investing prospects, while also offering robust business models. This strategy could be successful in future for two main reasons.

Firstly, defensive shares may deliver relative outperformance over the medium term. Certainly, the stock market is in the midst of a major bull run at the present time. The FTSE 100 has recently reached a record high, and investor sentiment is on the up. However, bear markets inevitably follow bull markets, and buying stocks which are less highly correlated to the wider economy could prove to be a shrewd move in future years. In addition, such shares may now offer good value for money, since many of them have been unpopular on a relative basis this year.

Secondly, focusing on dividends can lead to higher returns in the long run. History shows that the reinvestment of dividends can have a significantly positive effect on portfolio performance as a result of the effect of compounding. Furthermore, companies which pay generous dividends often have a stronger financial outlook than those that do not. That’s because they can afford to pay a higher level of dividends, while their management team may be more confident in their earnings outlook.

In addition, dividends may become of even greater importance in future. Inflation is forecast to move higher, and stocks which can offer a real income return could be in demand to a much greater extent by investors.

Smaller companies

As well as investing in defensive growth stocks, Neil Woodford also buys relatively small companies. They may be risky, but can also offer high rewards. In fact, history shows that small-caps can offer superior returns in the long run than their larger peers. This may be because of less coverage by market analysts which leads to more asymmetric risk/reward opportunities. Or it could be that smaller companies, by definition, have more scope to grow due to their relatively low base.

Either way, smaller companies can be a worthwhile investment in the long run. However, diversifying among a large number of them could be crucial to overall success. Uncertainty in small-caps is generally high and buying a wide range of them in a number of different sectors seems to be a shrewd move.


By focusing on defensive dividend stocks as well as smaller companies, investors may be able to generate improved returns in the long run. Neil Woodford may have endured a difficult year, but his track record suggests that his methods are sound and could be worth adopting in 2018 and beyond.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »