UK shares: how I’d invest in the stock market for the highest returns

·3-min read
A graph made of neon tubes in a room
Image source: Getty Images

UK shares have a reputation for being less exciting than their US counterparts. After all, America’s Nasdaq index is home to some of the world’s most innovative companies.

But I’m not convinced this is a good enough reason to overlook British stocks. Why? Well, I think it’s possible to achieve a handsome return buying high-quality UK shares and holding them for the long term.

With that in mind, here’s exactly how I’d invest in the stock market in an attempt to achieve the highest return on my investment.

Funds vs shares

The question of whether it’s better to invest in funds or individual shares has been ongoing for a while now.

The biggest difference between the two is that stocks are an investment in a single company. In contrast, funds usually have many investments. In fact, some hold hundreds of stocks.

Inevitably, there are advantages and drawbacks to both. What’s more, I don’t think there’s a right or wrong answer to the question. For me, it’s going to depend on my goals.

My ultimate objective is to achieve the highest returns possible. Moreover, since I’m implementing a long-term strategy, I’d be in a position to take on more risk than if I was, say, nearing retirement.

On this basis, I believe allocating a substantial portion of my portfolio to individual stocks represents the optimal strategy. This way, I can select a diversified basket of 10-20 UK shares with the aim of outperforming various benchmarks.

This won’t be without its challenges though. After all, I’d be taking on a high level of risk given that stocks fluctuate in price for many reasons.

Growth vs value

Nevertheless, having decided to opt for a strategy focusing more on holding individual stocks, I’d now be in a position to determine what kind of companies I should invest in.

For me, this process boils down to deciding between growth stocks and value stocks.

Put simply, growth companies are businesses with exciting products that have the potential to explode in demand over the long term.

Meanwhile, value companies are typically larger businesses that don’t have enormous growth potential. Instead, the appeal is that they could be trading below their intrinsic value.

Once again, I don’t think either option is superior since both can generate substantial returns. As with before, it comes down to my personal preference.

Since I’m in a position to ride out volatility in the long run and quite fancy the challenge of picking out winners in emerging industries, I’d opt to allocate a greater share of my portfolio to growth stocks.

That said, I’d still hold a select few value stocks in an attempt to reap the rewards from both value and growth shares.

Long term vs short term

After building my portfolio, I’d be ready to sit back and wait it out. In any case, investing for the long term will give my money the greatest chance of growing in value.

The risks associated with a short-term outlook are plentiful. Moreover, I’ll need time to maximise the growth opportunities of the companies I invest in.

As a result, after buying those high-quality UK shares, I’d aim to hold them for at least the next 30 years to maximise my potential for high returns.

The post UK shares: how I’d invest in the stock market for the highest returns appeared first on The Motley Fool UK.

More reading

Matthew Dumigan 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.

Motley Fool UK 2023