If vaccines can see off Covid-19, I reckon 2021 could be a great year to invest in UK shares. After several years of underperformance, events may be moving in their favour. That’s why I’m shunning cash, buy-to-let, Bitcoin and Premium Bonds, and piling into equities.
UK shares have struggled since the shock Brexit referendum result in June 2016. Foreign investors have stood back as they waited to see how this would play out. Well now we know. The UK has left the EU, with a barebones deal. It’s not ideal, but at least businesses know where we stand. There’s been no economic meltdown yet.
The anticipated stock market rally did not last long. Prime minister Boris Johnson killed it off by announcing a third national lockdown. However, our vaccine rollout programme is well ahead of Europe, and that means we could be first out of the pandemic too. If that happens, people will explode out of their homes, ready to splurge the money they saved while stuck indoors. At that point, I believe UK shares will fly.
I’m going ‘risk on’ in 2021
Foreign investors will see the rebound in sentiment, decide UK shares are too cheap to ignore, and overseas money will flood in. That’s the bull scenario.
I can’t think of anything bullish to say about cash, with high street banks paying as little as 0.01% on their savings accounts. Analysts are betting that the Bank of England will cut base rates below today’s 0.1%, sending them into negative territory for the first time ever. That will make a bad situation for savers unimaginably worse.
Buy-to-let is enjoying a bit of a renaissance as the stamp duty holiday tempts amateur landlords back into the market. I’m not joining them, though. I’ve written-off property investment as too much bother, given all the hassles of dealing with tenants, repairs, letting agents and so on. Also, it’s a tax nightmare,as investors still pay a 3% stamp duty surcharge on purchases, income tax on rental earnings and capital gains tax (CGT) on any profit. By contrast, I can hold UK shares free of income tax and CGT for life inside a Stocks and Shares ISA.
I’m buying UK shares for the long term
Bitcoin is flying to the moon, with the price doubling in a month to more than $38,000. I would be simply terrified of buying at today’s price, as a short-term correction is almost baked in. It’s too risky for me.
More than 20m people own Premium Bonds, but with the prize rate standing at just 1%, I won’t be joining them. You have to buy a fair chunk of bonds to stand much chance of winning anything in return, and I don’t want to gamble my financial future in this way.
For me, UK shares are the best way of building future wealth. And I want to take advantage by investing while they’re still cheap.
I'd consider starting here.
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Harvey Jones 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.