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3 reasons why buying UK shares now could give you great financial returns for life

Andy Ross
·3-min read
Senior couple at the lake having a picnic
Senior couple at the lake having a picnic

UK shares have significantly underperformed against other stock markets of late, especially when compared side by side with US indices. In the US, the S&P 500 has risen 5% this year. The FTSE 100 has lost just less than a quarter.

Yet the idea of buying low and selling high is well known. Given the UK is out of favour, I’d argue that makes now an ideal time to invest. These are the three top reasons why buying UK shares now could, in my opinion, give you great financial returns in the future. This in turn could give you wealth for the rest of your life.

Reason #1 Many shares are undervalued

It’s been reported that retail investors are shunning the UK in search of higher growth in the American markets. By the end of June, just 14% of British retail investors’ assets were in UK equity funds — far lower than the 23% in 2015. In many ways that’s understandable and, as part of a balanced, diversified portfolio, may be a good move.

However, I like the idea of buying undervalued shares. The UK is now home to many of just these types of shares. Not just in older-style industries that dominate the FTSE 100 like oil & gas and banks, but in growth industries like technology and biotechnology.

The UK has many of these shares if investors are willing to look closer to home. They are often selling internationally and can be bought much cheaper than their US counterparts. They may also be prime targets for takeovers. This could be beneficial for shareholders if a premium is paid.

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Reason #2 UK’s business-friendly environment

The UK is home to many established businesses. The business-friendly environment I think means the UK will remain – whatever happens with Brexit – an attractive location for internal and foreign investment. This is important for investors in listed companies because it affects the appetite and demand for UK shares. As we’ve seen with the US stock market, perception is important.

The more positive investors are about the prospects for the UK (both those in the UK and from overseas), the more likely it is that listed companies will do well. Private shareholders can benefit from this situation.

Reason #3 UK shares tend to pay dividends

The average dividend on UK shares, especially in the FTSE 100, is far higher than in the tech and growth dominated US market. For me, dividend income is essential for compounding and that’s why I want to keep investing in UK companies.

I think given the combination at the moment of the cheapness of the UK market, alongside the high dividends many UK companies are paying – there’s a real opportunity for UK investors. That means the chance to buy shares that combine increasing income and growth potential in the coming years. This could help set you up for life by providing great financial returns. Right now there’s a golden chance to buy low and in future sell the shares at a much higher price.

The post 3 reasons why buying UK shares now could give you great financial returns for life appeared first on The Motley Fool UK.

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Andy Ross has no position in any 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.

Motley Fool UK 2020