Despite worrisome recent headlines about the potential for another economic slowdown, I’m continuing to invest in UK shares. And I’m aiming to build a retirement income from investing to draw alongside my State Pension.
One breathless news report last week shouted about European stock markets heading lower because of “fears of an economic slowdown as the pandemic continues to disrupt global supply chains.“
Focusing on what counts
But there’s always a negative story around. So I’m following the advice of successful multi-millionaire investors such as Lord John Lee. He reckons it’s best to ignore the overall level of the stock market, and to avoid making judgements about the macro-economic outlook.
And that’s a liberating approach to take when it comes to the process of investing. Forgetting all that stuff, as Lee suggests, means I’m free to focus on what really matters — the UK shares that interest me and the news flowing from the businesses behind them.
A key part of my plan is to look for smaller businesses with the potential of a long runway of growth ahead of them. I’d aim to buy UK shares like that when the valuation looks attractive and hold them as the growth story unfolds. And that often means holding those stocks for years.
So that means I don’t often invest in big, mature companies such as those found in the FTSE 100. Although big-cap firms can deliver decent returns via shareholder dividends and capital appreciation, they often lack as much growth potential as smaller companies. Although bigger returns aren’t certain from smaller firms. But all shares carry risks and I could lose money on UK shares by choosing badly.
Compounding gains from UK shares
Nevertheless, I’m embracing the risks and aiming for bigger returns by investing in smaller businesses. But a big part of the strategy for building an investment pot to support a retirement income is to reinvest gains along the way.
And that means ploughing back in shareholder dividends, capital returns and other gains. So if there’s cash in my share account, I’m always looking to reinvest it.
That approach helps to compound the gains from my investments. And, over time, the process of compounding is a key element of the plan. The way compounded gains can grow exponentially is why billionaires such as Warren Buffett became billionaires in the first place.
I’m not expecting to compound my way to billions with UK shares. But I am aiming for the compounding process to combine with the growth potential of smaller UK shares to deliver a meaningful fund for my retirement.
When retirement arrives, I’ll aim to switch my investments into income-paying vehicles. At that point I’d consider dividend-paying FTSE 100 companies, or perhaps a tracker fund that follows the entire lead index.
