Warren Buffett’s advice for 99% of investors is to buy a diversified collection of stocks – and then forget about them. The Berkshire Hathaway CEO prefers US equities, but I think UK shares are better value right now.
Investing in the stock market can be a great way of building wealth and earning passive income. But the best results come from investing in strong businesses when their shares trade at bargain pribari
Growth vs income
When identifying stocks to buy, what I look for depends on what I’m trying to achieve. If I’m attempting to build wealth, then I want to buy shares in businesses that will be worth more in the future.
This means I’m targeting shares in companies that have opportunities to reinvest the cash they’ve generated. In doing so, they’re looking to earn even more in the future.
With passive income, however, the situation is quite different. I’m looking for businesses that can generate more cash than they’re able to invest and therefore look to return the excess to shareholders via dividends.
Either way, it’s important to stick to buying stocks when they’re good value. And whether it’s growth or dividends, I think there are opportunities in UK shares at the moment.
A FTSE 100 growth stock
Shares in Rightmove (LSE:RMV) have just started to rebound in the last month from a 52-week low. But I still think the FTSE 100 stock is good value at today’s prices.
Over the last decade, the company’s earnings per share have increased by an average of 12.5% per year. Strong revenue growth has been boosted by share buybacks, which I think can continue for decades to come.
Recently though, the market has been concerned with the possibility of increased competition. This could be a threat to Rightmove’s high margins, which are the source of its excess cash.
But the number of buyers and sellers on the platform means the business isn’t going to be easy to disrupt. With £1,000 to invest today, I’d put £500 into Rightmove shares to exploit what I see as unjustified pessimism.
A FTSE 250 income stock
Primary Health Properties (LSE:PHP) is a real estate investment trust (REIT). Despite a recent rally in the company’s share price, the FTSE 250 stock is still down 14% since the start of the year.
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REITs are required to distribute 90% of their taxable income to their shareholders as dividends. As a result, they tend to have limited growth prospects, but can be much more attractive from a passive income perspective.
Right now, the stock comes with a 7% dividend yield. At that level, I don’t think the company needs to achieve much in the way of growth in order to be a good place to invest £500 for the next 20 years.
The value of the firm’s assets might come under pressure if interest rates stay high. But with a fully-occupied portfolio and most of its rent funded by the NHS, I see this as a reliable source of passive income for the future.
