While UK shares may be going through a sticky patch, the long-term decline of cash is far more shocking. Today, the big banks pay just 0.01% on easy access. They have all but abandoned savers.
Anybody who leaves sizeable sums on deposit will barely see the value of their money grow at all. It may even fall in real terms, after inflation. If you want to build your wealth over the long term, cash is no longer the way to do it. That’s why I’m still investing most of my wealth in UK shares instead.
Plenty of people dream of building a million pound portfolio for their retirement. It sounds like pie in the sky, but it can be done. The earlier you start, the better. That way your capital growth and dividends have so much longer to grow in value.
You can make a million with UK shares
You have to put your back into it, though. Somebody who invested £500 a month from age 25 and made an average total return of 6.5% a year after charges, with dividends invested, would have £1.12m by age 65.
Sadly, not many 25-year-olds have that kind of money at their disposal, especially at the moment. However, investing something is better than nothing. You can always pump in more money later, as your income rises.
Investing £500 from age 35 would give you £551,935 by age 65, assuming the same growth rates. That’s not a million, but would still help assure a comfortable retirement. If you have a workplace pension too, and receive the odd windfall, such as inheritance, you may still get there.
The earlier you start buying UK shares, the better. That way your contributions have much longer to compound in value.
Some people may be wary of investing during the stock market crash. Yet history shows this is often the best time to invest. The FTSE 100 is still down more than 20% since the start of the year, which means you’re buying top stocks at a 20% discount. Some have fallen more than that, by 30% or 40%, but make sure you understand the risks.
FTSE 100 bargains to be had
We are facing our fastest ever recession, and we still have no idea how rapid the recovery will be. Some sectors may struggle to recover at all. I would be wary of travel stocks right now, for example, and bricks and mortar retail.
Choose your UK shares carefully though, and you’ll get your reward when market sentiment improves. You could play safe with traditional defensive shares such as National Grid or United Utilities Group, and pharmaceutical giants AstraZeneca and GlaxoSmithKline.
Then take on a bit more risk on solid FTSE 100 stocks such as drinks giant Diageo, household goods firm Unilever, insurer Legal & General Group, or equipment rental firm Ashtead Group.
Build a balanced spread of UK shares, reinvest your dividends, then be patient. If you want to make a million from the market, you must measure your success in decades, rather than months.
If you leave your money in cash, you’ll probably never make it at all.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, GlaxoSmithKline, and Unilever. 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.