In an attempt to copy my favourite investor Warren Buffett, I like to try and keep investing as simple as possible. That’s why a large proportion of my portfolio consists of FTSE 100 shares.
I think the Footsie is a great tool for investors to use when it comes to building long-term wealth. It’s jam-packed with high-quality companies. And right now, I think plenty are severely undervalued.
Patience is a virtue
In the last couple of years, we’ve experienced large bouts of volatility in the stock market. The pandemic, inflation, and conflicts, to name a few things, have seen share prices suffer.
However, by ignoring short-term volatility, I plan to build wealth in the long run by owning these shares.
In the last five years, the average annual return of the FTSE 100 is just 1.6%. Yet since its inception in 1984, the index has returned 7% on average per year.
Many UK companies have seen their value fall drastically in recent times. And for investors, that can be concerning.
But on the other hand, could it be an opportunity to buy cheap now and hold for the decades to come? Investing £10,000 in the FTSE 100 today with a 7% return would see me have over £115,000 in 35 years. That’s without me contributing any additional cash. It’s also excluding any dividend payments.
Beating the market
That’s an impressive return. But what if I want to try and beat the market? What would I buy to do this? I think Scottish Mortgage Investment Trust (LSE: SMT) could be a worthy candidate.
Scottish Mortgage is evidence that playing the long game is worthwhile. In the last year, the trust has risen a meagre 1.4%. However, in the last five years, it’s up 61.3%. In the last decade, its price has climbed over 270%!
What I most like about the trust is the diversification I get through one investment. Buying Scottish Mortgage essentially means I own a small sliver of the 99 companies in its portfolio. This includes top businesses such as Amazon and Moderna. It also includes unlisted businesses such as SpaceX.
On top of that, it’s currently trading at a 4.5% discount to its net asset value. What that means is that I can buy the companies it owns for less than their market rate.
The share price has struggled in recent times given its focus on growth stocks. They tend to be heavy with debt to accelerate growth. In high-interest-rate environments, investors deem them too risky. As such, it may suffer in the months ahead.
But as a long-term investor, I think there’s plenty of upside to owning a trust that has an eagle eye for the next big thing. After all, it bought Tesla back in 2013 for just $6 a share.
By investing in FTSE 100 shares, I’m confident I can build my investment pot substantially in times to come. By hand-picking shares such as Scottish Mortgage, I’m hoping to add to my wealth further.
