With stock markets being relatively high at the present time, it can be difficult to think clearly about where to invest for the long term. After all, a bull market tends to make investors more confident about the prospects for their own portfolios. That’s understandable, since growth has been strong, but over the course of a period of 10 years, a significant amount can change.
Clearly, no investor wants to miss out on potential growth over the coming years. However, adopting a contrarian stance could also be useful. With that in mind, here are three areas I’m focusing on today, with the aim being a significant total return over the next decade.
While the prospects for the UK economy may have deteriorated in the last couple of years, the long-term growth potential remains high. Certainly, the coming months are likely to see increasing uncertainty as Brexit talks progress. And once Brexit does happen, investors, businesses and consumers may remain cautious about how the economy could perform.
However, with a strong track record of growth, the long-term prospects for the UK remain relatively bright. Trade deals are likely to be struck, and higher levels of growth are likely to return.
As such, buying shares that are focused on the UK could be a shrewd move. They generally offer a wide margin of safety at the present time, with investor sentiment being relatively weak. As a result, their returns over the next decade could be high.
Since the FTSE 100 is in the midst of a bull run, sentiment towards defensive stocks is weak. That’s unsurprising, since investors are taking risks and seeking to buy stocks that can offer the prospect of high earnings growth.
As a result, there could be an investment opportunity among defensive shares. They may fail to keep up with the wider market during the current uptrend. However, over the next decade there is likely to be a recession and/or bear market. During that time, they could offer reduced volatility as well as relatively strong returns.
Although inflation has fallen in recent months, dividends remain a key part of many investors’ portfolios. History shows that their reinvestment can be a major factor in generating a high total return, while a company that can grow dividends at a rapid rate could become more attractive to investors.
Furthermore, fast-growing dividends may signify growth potential within a specific stock or industry. Management may be confident about future prospects, while a growing dividend can indicate improving financial strength. As such, a continued focus on this area could lead to rising portfolio returns over the long run.
With a number of FTSE 100 shares offering high yields in addition to dividend growth, now could be a good time to focus on income shares, with the view of holding them for a prolonged period of time.