A bit of passive income to help our retirement has to be a good thing. I mean, income that we don’t have to work for has to be the best kind, right?
My number-one choice is always shares in UK companies, ideally in a Stocks and Shares ISA. And I want to tell you why.
Shares go up
OK, shares don’t always go up. In the pandemic, they crashed. And some companies even go bust, sending their shares all the way down to zero.
But here’s the thing. The wider the range of shares we buy, and the longer we hold them, the more likely they are to go up.
The Covid crash? The FTSE 100 has already recovered.
And who cares if one stock goes bust if the other 19 in our 20-stock portfolio are climbing?
Shares pay cash
When we buy shares, we take part ownership of a business. That business then makes profits for us, and hands over our share as dividends.
We’ll have some years with weak, or no, dividends, for sure. But they tend to rise over time. As it happens, 2023 looks like it’s shaping up to be the third-best year ever for cash returns from FTSE 100 companies.
Oh, and 2024 looks like it could be even better.
Shares generate wealth
If we put money in a bank, or buy bonds, where does the cash come from to pay our interest? Our capital gets used by bond issuers to grow their businesses, or loaned by banks for other business to do the same.
Ultimately, the cash that goes to pay people who save money comes from the businesses that create the wealth. You know, the businesses we own when we buy shares.
So why not cut out all those in the middle who take a cut, and just own the business directly?
Shares beat the rest
Barclays has been researching the returns from shares, cash savings and bonds. The records go back as far as 1899.
And you know which comes out on top? Well, you’ll have already guessed. UK shares have soundly beaten other investments for more than a century.
Yes, there have been some bad spells. But the longer the period we look at, the more shares have come out on top.
Shares are easy
Buying shares is super complex and expensive, isn’t it? Well, no, not really.
Today, we can buy and sell shares in an ISA at the tap of a button. And charges are the lowest they’ve ever been.
What about choosing the shares to buy? We do need a strategy, for sure. But mine is simple. I just buy FTSE 100 shares that pay good dividends. And I go for different sectors to spread the risk.
Go do it?
Now I don’t say we should all rush out and buy shares. No, we each need to do our own research, understand the risks, and only buy if we’re happy with our decisions.
But I do think that anyone who wants to invest for long-term passive income could benefit from taking a look at stocks and shares.
