£1,000 to invest? Here’s how I’d look to make £20,000 using UK shares

Paul Summers explains why he’s confident of multiplying his money 20-fold over his investment lifetime via UK shares.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Turning £1,000 in £20,000 via UK shares may sound like a pipe dream, but I think it’s achievable for a private investor like me. While there’s more than one way to climb the mountain to riches, my strategy is to move away from the best-known stocks and focus more on the minnows.

Why it pays to go small

There are several reasons why smaller companies have historically outperformed their larger market peers.

First, high-quality small-caps can grow revenues and profits at a faster clip. This makes it easier for a company with a market-cap of, say £100m, to double in value. A company like FTSE 100 oil giant Royal Dutch Shell however, will take far longer to double, if it happens at all.  

Second, the vast majority of analysts in the City spend their time pouring over the latest figures from the best-known companies on the London Stock Exchange. As a consequence, many promising, junior UK shares rarely appear on their radars. This is clearly a good thing for the nimble private investor since these stocks are more likely to be mispriced. 

Third, professional fund managers are often prevented from buying these companies even if they’re aware of how good they are. This underlines the benefits of learning to manage one’s own investments, assuming the time and inclination. 

Be warned

Now, let me be clear. Small-cap investing isn’t for everyone. In fact, there are reasons why some people might want to steer clear entirely. 

First, share prices can be extremely volatile. This is usually because these stocks tend to be harder to buy or sell quickly. That’s not necessarily a problem when markets are behaving themselves. However, it’s a potential disaster in the event of a market crash. Last year showed it’s possible to lose a great deal of money (at least on paper) in a very short space of time.

This brings me to my second point. To be more confident about getting a great return from small-cap UK shares, patience is required. Again, this might not be a problem for those with decades of their stock market journey left. However, older investors may not be quite so flexible. This is particularly the case if they’re approaching retirement, or have already quit the rat race. 

Does this mean it’s impossible to make good money without taking on insane levels of risk? Actually, no. There are ways of mitigating this.

Ways to reduce risk

Aside from ensuring I’m not overly invested in any one company and being extremely wary of ‘penny’ stocks, I also own a number of actively managed funds investing in this space. While the fees are unquestionably high, I believe the eventual return should be worth the expense. 

As an example, I’m currently invested in the Liontrust UK Smaller Companies Fund. Managed by Anthony Cross and Julian Fosh, this fund has returned over 1,600% since 1998. Seen from this perspective, multiplying the portion of my capital invested in small-cap UK shares 20-fold in the next 30 years (my personal investing horizon) might actually be possible! 

Sure, 2020 showed that the path to riches certainly won’t be without a few setbacks. However, so long as I can steer clear of meddling with my portfolio too often,  I’m confident the rewards will be worth it. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares in Liontrust UK Smaller Companies Fund. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »