Dividend stocks and the passive income they provide can help shield me from declining returns in the wider stock market. One intriguing feature of dividend shares is that yields usually move in the opposite direction to the share price. With many shares falling significantly in the last 12 months, I feel spoilt for choice. I’m unable to make a large enough investment today to retire and live off dividends. However, I see a realistic opportunity to earn £67 a month.

Energy Price Guarantee

Why £67 a month? Millions of British households are receiving £400 this winter through the Government’s Energy Bills Support Scheme. That’s roughly £67 a month until March. What happens after that is still unclear. Chancellor Jeremy Hunt needs to find a balance that supports households while reducing government debt. Through dividend shares, I could continue receiving £800 a year or £67 a month, which I can choose to reinvest or use to pay my bills. Here’s how I’d do it. 

10% dividend yield!

Direct Line Group (LSE: DLG) is a British insurance company, operating under many brands. Its stock is currently one of the highest-yielding in the FTSE 350 index. Direct Line shares have fallen 18% in 12 months and there are similar trends across the insurance sector. However, this price fall caused its dividend yield to shoot up, now at 9.88%.  

At the time of writing, each share is priced at £2.42. Given the 9.88% dividend yield, I’d expect to receive a dividend of around £0.24 for each share I own. Therefore, I’d need to buy 3,367 shares to receive my target monthly passive income. Today, that would cost me £8,138.71. Unfortunately, I don’t have that much cash on hand right now. Instead, it may make sense for me to make regular payments over a number of months rather than as a lump sum. Before I do though, let’s assess the risks.

A challenging year

In the third-quarter trading statement, Direct Line CEO Penny James reported that gross written premium fell 5.8% year on year, pointing challenging market conditions, particularly in its motor division. Higher used car and car part prices and longer repair times amid supply chain challenges have inflated claims paid out.

The company’s dividend is higher than its historic average. Is it sustainable? I’m concerned that the dividend cover is hovering around 1. Therefore, earnings generated are only just enough to pay shareholders their dividends. A further squeeze on earnings could force the company to cut its payout.

Importantly, dividends are never guaranteed. They’re subject to both company and macroeconomic risks. The risk is also greater when only investing in one company so diversification is important. However, the company reassured that its outlook for dividend capacity remains unchanged. 

For now, I’d feel comfortable investing in Direct Line as it has brand power in a competitive industry — so much so that it doesn’t sell through price comparison websites. It boasts strong retention rates but is focusing on generating new business. In response to the cost-of-living crisis, it’s releasing new, more affordable car insurance policies. The next year could be volatile for insurance, but it should stabilise. Moreover, I trust the management’s track record to weather this economic storm and the stock is on my ‘to buy’ list for later in the month.

The post I’d buy 3,367 shares of this stock for £67 in monthly passive income! appeared first on The Motley Fool UK.

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• When will Barclays shares hit £10?
• easyJet shares have bounced back before. On a P/E ratio of 6, could they do it again?
• Could National Grid shares offer me a dividend that won’t be hurt by inflation?
• Here’s what happened to £1,000 invested in the past 2 stock market crashes

Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shell (LSE: SHEL) shares have risen by 48% in just 12 months. I have never invested in Shell or other fossil fuel companies. Although this now fills me with regret, I believe my reasoning is sound. I don’t believe that oil and gas companies will continue delivering value and outperform the wider stock market in the long term. That’s why I still don’t plan to invest in Shell today.

My view contradicts that of Martin Walker, manager of the Invesco UK Opportunities fund. The fund is up 18.99% in the last five years, well above its benchmark, the Investment Association UK All Companies Sector, which is up just 2.69%. Interestingly, Walker believes that Shell is still a bargain today. Am I wrong on Shell and the energy sector?

Why I haven’t invested

Shell reported adjusted earnings of $9.45bn for the third quarter. That is its second-highest profit ever. I’m convinced that such high profits are not sustainable. I’m also concerned that the company is using these record profits to deliver short-term shareholder gains rather than long-term growth. 

In the first half of 2022, Shell invested 6.3% of its £17.1bn profits into low carbon energy. It invested nearly three times more in oil and gas. The world will need to move away from fossil fuels both for energy security and to reach net-zero emission targets. I’d prefer to see greater investment on renewable energy. However, I understand its approach to an extent due to existing geopolitical and macroeconomic conditions. 

I am less understanding of its announcement of a $4bn share buyback programme in late October. Rumours are growing that the government will extend the windfall tax on oil and gas companies in this month’s autumn budget. Huge share buybacks make such a tax an increasingly popular one to help stabilise the UK’s public finances. It would also hit the company’s earnings.

Shell shares remain a bargain?

So what about the bull case? BP and Shell are Martin Walker’s two largest holdings and he expects both to continue delivering strong returns. That’s based on the law of supply and demand. Walker said the following to The Telegraph: “Looking ahead, we see a number of constraints associated with increasing oil supply. Assuming we see some growth in the global economy over the next five years, oil demand should continue to rise“.

If that assessment is correct, strong oil prices over the next five years may not be priced in to Shell’s share price. Additionally, Shell is generating significant amounts of cash and Walker predicts this will further boost share performance. He said, “I don’t know how long these conditions will persist, but when companies are generating 20% of their market ­capitalisation in cash in a year you do not need these conditions to persist for very long to have a meaningful impact on their performance“.

Shell’s enormous profits may well continue for a while yet. Therefore, I do see a short-term bull case but also suspect that performance in the long term will be underwhelming. A windfall tax or a welcome end to the war in Ukraine could quickly weaken earnings. I won’t be investing today but would consider doing so if I see a greater focus on renewable energy investments and long-term growth.

The post Should I invest in Shell shares as profits soar? appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

UK interest rates have risen from 0.25% to 3.00% this year and further hikes are likely. Higher interest rates typically cause stock market declines and some companies are particularly sensitive to rate changes. However, I’ll continue to take a long-term approach to investing. Therefore I’m searching for stocks that can thrive not only in this period of volatility but over the next 10 or more years.

Lloyds Bank

Banks can earn more when interest rates rise because they charge more on the money they lend. Additionally, their net interest income (the difference between interest earned on loans and interest paid out for savings) should increase. However, an unfavorable macroeconomic environment can hit profits. With fears of the UK falling into a recession, Lloyds Banking Group (LSE: LLOY) is having a rough year. In fact its share price is down 15% in 2022. 

It’s forecasting an 8% fall in house prices, a slowdown in mortgage lending and 5.5% unemployment next year. Given these grim predictions, Lloyds has put aside an extra £668m to cover losses if customers default on debts. It can absorb substantial impairment charges in the short term after net income rose 12% to £13bn last quarter. Longer term, it plans to become a major player in the UK rental market, buying 50,000 homes in the next decade. There’s an opportunity here for significant income growth. If interest rates stay relatively high and the economic outlook improves, Lloyds shares would look cheap today.

Vodafone

Historically, higher-risk assets perform poorly when interest rates rise. Defensive shares such as consumer staples and utilities can outperform. Vodafone (LSE: VOD) falls into that category. Its share price has been tumbling since 2014 but it could be in a strong position to weather this economic storm. The business is Europe’s largest broadband provider and is targeting significant revenue growth in Africa too. It has a global presence and its overseas revenue could be inflated by a falling pound.

Demand should remain robust for Vodafone’s services even in a recession. My concern with the company is its large debt. Standing at £42bn, this could become a major issue if earnings are squeezed while interest rates rise. Yet the company doesn’t seem too worried having launched share buyback programmes in the last year. 

Apple

Tech stocks are particularly susceptible to rising interest rates. Many of them are valued based on future growth prospects that are now less optimistic. Apple shares declined 23% this year, but have fared better than the Nasdaq Composite, down 33%. 

While many businesses could struggle to make ends meet, Apple has $48bn cash on hand. That could grow along with rising interest rates. It holds on to profits to reinvest in growth opportunities, company acquisitions and share buybacks. A recession would likely cause a reduction in its hardware sales and services subscriptions. But it should have no long-term issues riding out worsening economic conditions. Through smart investments, it could expand its already large and loyal customer base.

Lloyds, Vodafone and Apple dividend yields have been boosted this year as their share prices declined. This could protect my portfolio from stagnating markets. The stocks now yield 5%, 7.36% and 0.66%, respectively making all three look attractive for the coming months and years.

The post These 3 stocks could thrive even as interest rates rise appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Lloyds Banking Group, and Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Over the last 12 months, there’s been a nearly 75% decline in the price of NIO (NYSE: NIO) stock. Electric vehicle (EV) stock valuations rose in 2020 and 2021, but that bubble looks to have burst.

Undoubtedly NIO is facing a variety of economic and geopolitical headwinds, but there may be cause for optimism. And last week, investor sentiment improved and the share price soared 23%. What changed and should I buy the stock today?

Meme stock

Huge price swings are par for the course when it comes to investing in NIO and this has been the case ever since its September 2018 IPO.

Why is it so volatile? Firstly, it has often traded like a meme stock, roared on by social media channels. These high-risk speculative plays have little to do with fundamentals and often resemble more of a gamble than an investment. There has been similar behaviour with other EV stocks, but NIO faces other unique challenges.

The stock could be delisted from the New York Stock Exchange. Many Chinese stocks on US exchanges face a similar fate if they don’t provide complete access to audit working papers. As China-US relations appear to be worsening, this is a real possibility. In that eventuality, shareholders rights around NIO wouldn’t be directly affected but the holdings would be harder to sell and the share price could collapse.

There are also domestic and international policies hindering production and growth. The US government has cracked down on chip exports to Chinese companies, putting further pressure on production targets. Meanwhile, Beijing’s strict zero-Covid policy has forced some of its factories to close, delaying deliveries.

Has the stock price bottomed?

NIO soared last week, rising 17.5% on Friday alone. This was after a report in The Wall Street Journal suggesting China may loosen that zero-Covid approach. But these are rumours and there’s been no confirmation from the government. However, fewer restrictions should enable higher growth and put the firm back on a path to growth and profitability.

Whether or nor the policy is loosened, it’s important for me to shut out the noise to assess the value of the shares. That’s tricky as the company isn’t profitable, but the crux of the bull case is the enormous growth potential of the EV industry. In fact China has the largest and fastest-growing EV market globally. NIO has benefited from this rising demand, as well as government subsidies and increased investment in EV infrastructure. Through referral programmes and VIP clubhouses it has built a loyal customer base. The opportunity in China alone is huge, but it has started to expand internationally too. Its cars are now for sale in Denmark, Germany, Norway, Sweden and the Netherlands.

So would I buy the stock today? The company’s growth potential excites me, despite the speculation and volatility. However, China-US relations may get worse before they get better. Contrarian investing can be rewarding but there’s a reasonable chance that the stock will be delisted. There are too many unpredictable factors separate from the company’s fundamentals, so I’m continuing to stay clear.

The post Up 23% in a week, is now the time to buy NIO stock? appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My investments and interest in renewable energy stocks are based on optimism for a greener future. Moreover, 2022 has highlighted the risks in fossil fuel dependency. Due to climate change and energy security concerns, there’s huge investment from public and private sectors into a variety of renewable energy sources.

Thinking ahead 25 years, it’s hard for me to imagine a world that hasn’t significantly shifted towards renewables. However, the returns I might get from an investment in such stocks are less predictable. Let’s asses the cases for and against investing in them today. 

Volatility

The S&P Global Clean Energy Index can be considered a benchmark, aiming to measure the performance of companies in global clean energy-related businesses. This year the index has declined 11%. That’s a dismal return considering fossil fuel giants like BP, Shell and Exxon are up 33%, 40% and 74%, respectively. The index has also been hugely volatile over the last decade.

My main case against buying renewable energy stocks today is this volatility. To clarify, I’m not just talking about the fluctuations in stock prices but the uncertainty that these trends may represent. Will future energy be sourced from batteries, hydrogen, nuclear, solar, wind, a combination of all the above or something else entirely? This is unclear to me. Even if I’m able to accurately predict this, which company or companies will come out on top?

For example, hydrogen looks like a promising alternative to fossil fuels. If it becomes a key piece of a net-zero puzzle, will innovative UK companies such as ITM Power and Ceres Power be the beneficiaries? Or will today’s leading energy companies lead the way?

They certainly have the financial resources to do so. Last quarter, Exxon smashed records when reporting its highest quarterly profits ever. Other fossil fuel energy companies are enjoying similar windfalls. Perhaps the best investment in renewable energy stocks today is actually an investment in the oil and gas juggernauts.

Needle in a haystack

I believe there are comparisons with the dotcom bubble in the 1990s. There were a number of innovative companies within a new and largely misunderstood tech sector. However, many went bust or their share prices never returned to their highs. Despite this, an investment in the tech heavy Nasdaq Composite would have rewarded patient investors over two decades.

Renewable energy stocks aren’t in a bubble. Yet this example suggests I may be wise to invest in a promising sector rather than betting on individual stocks. Why find the needle in the haystack when I can just buy the haystack? It also highlights the importance of taking a long-term approach.

One option is to invest in the iShares Global Clean Energy ETF. It’s one of the most popular renewable energy ETFs and aims to reflect the returns of the S&P Global Clean Energy Index. I’d be happy adding it to my portfolio in the coming months. But if I do, I’ll strap myself in for a long and bumpy ride.

The post Are renewable energy stocks a no-brainer buy? appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since 1965, Warren Buffett has led Berkshire Hathaway to an average annual return of 20.1%. He’s one of the most successful investors of all time having adapted and thrived over decades of changing market conditions. And despite adapting, his core principles have remained consistent throughout.

Stock markets have been ugly in 2022 and there may be more pain to come. Now, more than ever, could be the time for me to invest like Warren Buffett. That’s easier said than done, of course. After all, Warren Buffett has more funding, better connections and greater influence than I do! Therefore, it’s probably not a great strategy for me to copy his investing moves outright. Even if I wanted to, his trades are only made public at the end of each quarter. 

Instead of copying his every move, I’d be better off adopting elements of his investing style. In particular, the way he identifies “wonderful” businesses and his long-term outlook. By incorporating these into my own budget and risk tolerance, I believe that I can build wealth over many years.

Simplicity and predictability

For decades, Buffett has searched for businesses with competitive and long-lasting advantages. Ideally they have an economic ‘moat’ to protect them from the invasion of new companies looking to tap into their markets.

He identifies businesses in industries that he understands and can predict with relative certainty. These companies usually have produced a similar product or service for many years with consistent growth. For example, insurance, railways and energy are staples of today’s economy. That’s unlikely to change any time soon and that’s partly why these sectors are dominant in his portfolio.

Notably, these are considered to be cyclical sectors. While energy has particularly outperformed the market this year, it tends to underperform during periods of economic contraction. Therefore, diversification is important for me to reduce portfolio risk.

Being patient

Importantly, Buffett buys businesses, not simply stocks. When he invests, he sees himself as a business owner. Whether owning a company outright or a fraction via shares, this mindset is important for all investors. With this mentality, it’s easier to think long term and be patient rather than simply trading stocks and following their prices. It also helps to put periods of volatility and stock market crashes into perspective. 

As an investor in the stock market, I’m optimistic in its potential for long-term returns. There’s good reason to be optimistic too. The US stock market, for instance, has never lost value over a period of 20 years or more. It’s not a get-rich-quick scheme, but instead it has historically rewarded patient investors. Buffett’s career encapsulates this. In fact, over 80% of his $105bn net worth was accumulated after he reached the US full retirement age of 66.

Historic patterns aren’t guaranteed to continue in the future, of course. But they do suggest that the longer my horizon, the less risky my investments should be. I’m hoping 2023 is a better year for global stocks than 2022 has been so far. Whatever happens, I’ll be looking to Warren Buffett’s core principles to guide me through it.

The post I’m using Warren Buffett’s core principles to protect my portfolio in 2023 and beyond appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

An investment in Alibaba (NYSE: BABA) stock at any time since its 2014 IPO would probably be in the red today. At the time, it was the largest-ever IPO, priced at $68, raising $21.8bn for the company and its investors. That was around eight years ago and only Saudi Aramco’s IPO has been larger since.

Despite being one of the most prominent Chinese technology names, investor sentiment and risk tolerance for Alibaba has faded dramatically. It’s been a volatile stock with an October 2020 high of $319 but today trades at around $72. So if I’d invested £10,000 in Alibaba stock five years ago, how much would my investment be worth today?

Not pretty

In dollar terms, Alibaba stock declined 59% over the last five years. Ouch! However, the pound has significantly weakened against the dollar in that time to increase the value of my hypothetical investment. Even with currency effects taken into account though, I’d only have £8,358.70 remaining of my £10,000 investment. I’d be down 16.41% after five years, excluding broker fees. Alibaba has never yielded a dividend that could have boosted my investment value. Below is a full breakdown.

The performance has been dismal. For context, an investment in the S&P 500 index would have returned 45% in the same period. That’s without taking into account currency fluctuations and dividend payouts. Despite Alibaba stock’s poor historic performance, should I invest in the Chinese multinational company today?

Do the fundamentals matter?

Alibaba is a company that has delivered revenue growth rates comparable to US tech giants Apple, Alphabet and Meta. Today, it looks cheap with a forward price-to-earnings ratio of just 9.28. It’s also China’s largest provider of public cloud services by revenue with plenty of room to grow. But its long-term performance could have very little to do with fundamentals and more to do with its numerous and complex challenges.

Firstly, Alibaba stock may be delisted from the New York Stock Exchange. Regulators from the US have long demanded complete access to audit working papers of New York-listed Chinese companies, including Alibaba. If this isn’t resolved, a delisting is a possibility. While this wouldn’t directly affect shareholders’ rights or claims on Alibaba, the holdings would be harder to sell and the share price could plummet. 

Secondly, Alibaba’s revenue is being hampered by Beijing’s strict zero-Covid policy. In the second quarter of the year, Alibaba posted its first ever flat year-on-year quarterly revenue growth. There are no signs of this policy easing so future growth is very unpredictable.

Finally, China-US relations continue to worsen. The US government’s crackdown on chip exports to Chinese companies will have put further pressure on Alibaba’s growth. It’s hard to see these relations improving any time soon.

This unpredictability makes it incredibly difficult to value the company. Without these geopolitical and regulatory headwinds, Alibaba stock would look like a bargain. However, I don’t feel comfortable investing in it today. Contrarian investments can deliver great returns for brave investors, but for now, I’m sticking to safer investments elsewhere.

The post If I’d invested £10k in Alibaba stock 5 years ago, here’s how much I’d have now appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nathan Marks has positions in Alphabet (A shares). The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m searching for cheap UK shares that can generate a passive income. 2022 has been brutal for many investors, including me. However, this could be a blessing in disguise when it comes to dividend-paying stocks. That’s because as stock prices fall, dividend yields typically rise. Huge declines in some dividend-paying stocks may present an incredible opportunity to supercharge my savings. Here’s how I’d go about it.

Dividend Aristocrats

Importantly, dividend payments are never guaranteed. They can be more or less than the amount distributed in previous years. Therefore, I’m searching for a company with strong business fundamentals that can weather economic storms. Dividend Aristocrats are a good place to start. These are usually companies that boast an economic moat or a comparative advantage. Additionally they typically have low debt and high profitability. Such characteristics allow them to consistently pay and increase dividend payouts to shareholders over many years.

One Dividend Aristocrat I’d buy today is Legal & General (LSE: LGEN). It’s a provider of insurance, savings and investment products. The demand for this tends to be robust in all stages of the economic cycle. Indeed, it has prospered within a competitive industry with a large customer base for decades.

It has been a tumultuous couple of weeks for Legal & General. Amid market volatility, the company felt the need to reassure investors. Specifically, it stated that it had not been a forced seller of bonds or UK government debt, known as gilts. Even so, the share price tumbled and at the time of writing, the stock is down 25% for the year. That’s good news for me though on my search for passive income. It now yields a very attractive and well covered 8.2% dividend.

What’s more, the stock trades at a forward price-to-earnings ratio of 6.3. It’s a quality business and it frankly looks like a good all-round value stock for my portfolio.

Passive income in 2023 and beyond

If I do buy Legal & General shares, let’s take a look at how it can earn me a target of, say, £500 in passive income next year. Each share will currently cost me 226.85p. Therefore, 2,695 shares would set me back just shy of £6,115. Assuming no cuts to its dividend, that lump sum should generate £500 in dividends in 2023. Tasty!

Unfortunately, I don’t currently have enough cash on hand to invest that lump sum today. However, I could still start building towards my savings goals. For example, I could invest £510 a month to save £6,115 in one year. Through regular monthly investments in strong, dividend-paying businesses like Legal & General, I can gradually build a portfolio that generates sustainable passive income. I tend to make investments at the beginning of each month and Legal & General is definitely on my to-buy list for November.

The post I’d buy this bargain FTSE 100 stock to generate passive income in 2023 and beyond! appeared first on The Motley Fool UK.

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Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Warren Buffett swears by the inexpensive strategy of investing in low-cost index funds tracking the S&P 500. He encourages this type of investment over active funds in particular. That’s because index funds typically have lower fees and it’s difficult for fund managers to consistently outperform. Moreover, the S&P 500 has returned a historic annualised average return of 11.88% over the last 65 years through bull and bear markets.  

Buffett even put his money where his mouth is. He bet that the S&P 500 would outperform a portfolio of five active funds over a 10-year period from January 2008 to December 2017. Of course the Oracle of Omaha was correct. The five funds averaged a return of only 36.3% net of fees. Comparatively, the S&P 500 returned 125.8%.

The index’s recent performance isn’t so strong. In fact, the returns have been miserable in the last year. It’s down 18% in the last 12 months and 23% year to date. So is the S&P 500 still a safe investment for me?

Empires rise and fall

Today, US stocks make up over 60% of the global stock market. Some 17 of the largest 20 companies by market cap are American. Indeed, it’s difficult to imagine a world in the short-to-medium term where US equities aren’t so dominant. However, in the 1980s, it was Japanese stocks that dominated the investment landscape.

In 1989, Japan accounted for 45% of the global stock market. Then, as the asset bubble burst and monetary policy tightened, Japanese equities plunged over 80%. Over 30 years later, the Nikkei 225 stock index still hasn’t fully recovered. Japan makes up just 6% of the global stock market today. Could the S&P 500 suffer a similar fate to the Nikkei?

I don’t believe so. Yes, the US and Japan face similar challenges such as ageing demographics and increased global competition. However, the US has a more open economic system. This allows for faster population growth and the inflow of the best and brightest from around the world.

Patience is a virtue

Back to my original question of whether investing in the S&P 500 today is a safe strategy. Inflation and interest rates continue to rise. Meanwhile, there’s no end in sight for the war in Ukraine. I fear that we haven’t seen a bottom yet and the bear market could continue for months and even years.

That doesn’t discourage me from investing in the index however. The longer my horizon, the less risky my investment should be. Throughout history, saving regularly through difficult market periods has ultimately rewarded investors. A longer holding period also allows me to benefit from the magic of compounding. Assuming a 10% average annual return — lower than the historical average — I could double my money in around seven years. In 30 years, an investment of £100 a month at this 10% return would leave me with around £210,000. I think my future self would be very thankful for that!

I have to accept that weak returns could continue though and I might even lose money.

And even assuming I make money, the S&P 500 index isn’t an opportunity to ‘get rich quick’. Instead, decades of historical data suggests that regular investments in it and a long-term horizon is likely to reward me as a patient investor.

The post Is it safe for me to invest in the S&P 500 today? appeared first on The Motley Fool UK.

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With most equity indexes firmly in the red in 2022, there are opportunities galore to snap up cheap shares. There are two businesses in particular that I have my eye on. Indeed, the short-term outlook for global equities remains gloomy. However, with a longer-term outlook of 10 years or more, I’d expect both of these companies to reward me as a patient investor. 

Legal & General

The first share that I’m considering is Legal & General (LSE: LGEN). There is an elephant in the room though. Recently, the pensions market has been in turmoil. Some pension providers have been forced to sell bonds and shares to meet demands for cash. Legal & General has reassured investors that it is not one of these forced sellers. That being said, this turbulent period highlights that there are risks in this business.

The long-term picture for Legal & General gives me more confidence. The demand for insurance and pensions tends to be robust. While the company may not quite have an economic moat, it is a well established brand with a large customer base.

The share price has tumbled 20% in the last 12 months. It now trades at a price-to-earnings (P/E) ratio of just 6.6. That looks cheap to me given that its median P/E in the past decade has been over 10. This is also an attractive investment from an income perspective. It yields over 8% and the company has set out plans to increase dividends annually until 2024. While dividends are never guaranteed, this one is well covered. Even in times of economic turmoil, this healthy dividend could provide a cushion for my portfolio. 

Meta

The second share I like is Meta (NASDAQ: META). I don’t own Meta shares in my portfolio today but I’d be happy buying at today’s prices. Down 60% in the last 12 months, I believe Meta has been oversold. Any investment decision I will make has little to do with its huge investments in the metaverse. Whether these pay off or not is purely speculation at this stage. Digital advertising remains the core business for Meta.

Yes, it has lost market share, and user growth across its products has started to slow. There are also headwinds in the form of iOS privacy changes and a slowing economy. However, it remains attractive to global advertisers. As the macroeconomic picture brightens, I’d expect investor sentiment to improve. Third-quarter results will be released at the end of the month. I’m particular keen to see whether the growth in Reels, its short-form video offering, continues.

With a forward P/E of 10.7, it could be a compelling buy for my portfolio. Its advertising business generated $115bn in revenue with an operating profit margin of 49%. The slowing growth may already be priced into the stock at these levels and I think the stock looks like a bargain today.

The post 2 cheap shares I’d buy and hold for 10 years appeared first on The Motley Fool UK.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.