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 or Amazon, 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 or Severn Trent. Then maybe a consumer income and growth stock, such as spirits giant Diageo, household goods firm Unilever or telecoms business Vodafone. Or try one of those boring companies you never hear about but do a marvellous job of building investor wealth, such as Ashtead Group, Bunzl, Informa, Phoenix Group Holdings or Rio Tinto.
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.
