Many investors have made a tremendous amount of money from buy-to-let property in the past. However, I believe the returns on this asset class are no longer as attractive as they once were. As such, I think buying UK shares is a better investment strategy for the long term.
And there are five stocks in particular I believe could generate huge returns for their shareholders in the years ahead, potentially making investors millionaires.
According to my research, company earnings tend to grow in line with inflation over the long term. That suggests growth of around 2-3% year. Assuming all else remains equal, earnings growth of 3% should translate into share price growth of 3%.
As well as this capital return, many stocks and shares offer investors dividends. A 5% yield, coupled with a potential annual capital return of 3%, suggests many UK shares could yield an annual total return of as much as 8% a year.
I think that’s more than double the return rate an investor could achieve with a buy-to-let property investment over the long term.
Some UK shares may even offer higher returns. An investment in Games Workshop, for example, has returned around 40% per annum for the past decade.
It’s these high-growth businesses I’d focus on to grow my wealth. Companies like Games Workshop and its peers, which have the potential to achieve far higher annual returns than the estimate I’ve highlighted above.
UK shares with growth potential
As well as Games Workshop, I am also interested in the property portal Rightmove. This company has a considerable share of the UK’s online property market, and I don’t see this changing anytime soon. Its competitive advantage has helped the group achieve market-beating returns for the past decade, which appears set to continue.
For those wanting to invest in buy-to-let but but don’t have the money, Rightmove could be an alternative.
Cloud computing is one of the world’s fastest growing industries. There aren’t many UK shares investors can buy in this theme at the moment. But Gamma Communications is one of London’s rare tech champions. Earnings have quadrupled over the past five years, and City analysts aren’t expecting this growth trend to come to an end in the foreseeable future.
Talking of technology, I’d also want to own anti-virus software company Avast. As the technology sector expands, criminality is growing too. That’s where Avast comes into play. As long as the corporation continues to invest in its capabilities, I think it will maintain its edge in the market.
Finally, I think one of the most promising UK shares in the financial sector is Secure Trust Bank. Despite its impressive growth record, the stock is currently selling at a mid-single-digit price-to-earnings (P/E) ratio. I think that looks too cheap to pass up.
This is one of my favourite ways to play the economic recovery over the next few years. And I believe buy-to-let property will yield inferior return by comparison.
The post Forget buy-to-let! I think these 5 UK shares could help me make a million appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Games Workshop. The Motley Fool UK has recommended Rightmove. 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 2021