I’m keen to hold some of the best UK shares for the long term. Over extended periods, underlying business progress can drive the returns from my holdings.
But businesses take time to develop and grow. So, holding for at least seven years feels like a decent timeframe to me. Ideally, I’d want to hold my stocks for much longer than that, perhaps for decades.
Compounding returns from the best UK shares
And while I’m holding those shares, I’d plough back in all my realised returns along the way so that my gains compound. For example, I’d reinvest shareholder dividends and any capital received from corporate actions. Or from gains received because I’ve decided to sell an investment for some reason.
Of course, one simple and almost hands-off way to invest for the long term is to buy share funds. I could, for example, go for simple, low-cost tracker funds that mechanically follow the fortunes of indices such as the FTSE 100, FTSE 250 or America’s S&P 500. I could even target small-cap stocks with a tracker fund or a particular geographical niche. These days, we can find trackers to follow most approaches to investing we can think of.
Or I could target managed share funds run by investment managers with a good reputation. Funds like those charge higher fees, but sometimes it’s worth it for the better returns the fund generates. I’m thinking of outperforming fund managers such as Nick Train, Terry Smith and Mark Slater. And other managers who have a strong record of performance but with less-well-known names. Of course, the risk is that previously strong-performing fund managers go on to underperform as Neil Woodford did.
Automatic reinvestment
However, most funds have the advantage of providing an option to automatically reinvest dividends. And I can get it by choosing the ‘accumulation’ version of each fund rather than the ‘income’ version. I think that’s a great benefit because it makes my ongoing investing life as hands-off as possible. Indeed, I can take care of the process of compounding my investments up-front. Then I need simply invest in my chosen funds on a regular basis over a long period of time.
There’s room in my portfolio for a core of fund investments. But in pursuit of higher returns, I’d also target some quality shares of individual companies. However, I don’t believe all companies are suitable as long-term investments. But I often find potential long-term investments in defensive sectors.
For example, I like the big dividend yields on offer with energy company SSE and smoking products manufacturer Imperial Brands. Both companies operate in a defensive sector. But I’d also go for packaging companies DS Smith and Smurfit Kappa because they serve the defensive, fast-moving consumer goods sector.
My final three long-term picks are meat-based food producer Cranswick, IT infrastructure company Computacenter and distributor Bunzl. All those companies appear to be well placed within a defensive niche in their markets.
