There are plenty of ways the modern investor can target long-term wealth with UK shares. Diversification is one of the most popular strategies for helping individuals attain a large passive income in retirement.
This be achieved with a selection of stocks spanning a range of industries, sub-sectors and territories. It can also be enhanced with a mix of value, growth and dividend shares.
Going for growth
Buying growth stocks can supercharge the size of an investor’s portfolio. As earnings take off, the value of these stocks often rises significantly, providing substantial capital gains.
The US stock market’s a popular destination for growth investors. But London also has its fair share of growth heroes to consider.
Information technology stock Softcat’s one. Market competition’s fierce, but its expertise across cybersecurity, digital infrastructure and cloud computing gives it multiple ways to capitalise on the booming digital economy.
I also like the look of Bank of Georgia, a major player in the country’s rapidly expanding banking sector. Returns could be bumpy however if geopolitical turbulence in the region persists.
Targeting value
The benefit of owning value shares is twofold. Like growth shares, they can provide significant scope for capital appreciation. But their low valuations can also limit share price falls if shocks come along that impact earnings potential.
Standard Chartered and Vodafone are two great value shares on my own radar today. Both trade on a price-to-book (P/B) value of below 1, indicating their shares deal at a discount to the value of the companies’ assets.
StanChart’s profitability could disappoint if China’s economy keeps struggling. Yet I still expect its emerging market focus to deliver excellent long-term gains. I’m similarly optimistic about Vodafone and its African operations, although it faces challenges in its core German market in the near term.
Generating income
Dividend stocks can help investors still grow their portfolios during economic downturns when growth shares often struggle. In this type of landscape I think The PRS REIT (LSE:PRSR) could be a stock to consider.
As a real estate investment trust (REIT), it’s obliged to pay at least 90% of rental profits out to shareholders.
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This itself doesn’t guarantee a dividend every year. But despite interest-rate-related pressure on profits, PRS REIT’s position in the ultra-defensive residential rentals market still makes it a largely dependable passive income stock.
In fact, profits here are rising sharply as rents in the UK balloon. Its like-for-like rents on stabilised sites leapt 11% between July and December, data this week showed.
Next steps
With this portfolio of UK shares, I believe an investor could realistically target an average annual return of 9%. At this rate, a £400 monthly investment in a tax-eliminating Stocks and Shares ISA would — after 30 years — provide a retirement pot of £732,297 (excluding broker fees).
If they then parked this cash in 5%-yielding dividend shares, they could enjoy an annual passive income of £36,615 in retirement. While dividends are never guaranteed, continuing to invest in a diversified range of stocks can protect against individual shocks and provide a healthy dividend income.
This is the route I plan to take with my own portfolio.
