Is there such a thing as a good or bad time to invest in shares? Many people think so, but in fact the stock market is a place to buy individual stocks. So, whatever may be going on more widely, there can be good or bad moments to invest in individual shares. That is the approach I have been taking lately when hunting for UK shares I can add to my portfolio.
Here is why, if I had a spare £5,000, I would be happy to invest it in such shares today in the hope of boosting my pension decades from now.
Investing now for the future
As a believer in long-term investing, I spend time thinking now about my finances years ahead. That includes my pension.
One of the things I like about investing for a pension is that the long timeframe can work in my favour. If I buy shares today in companies that have excellent business models, hopefully over time that can generate profits and improve their valuation, boosting my pension.
For example, I could invest in a business I hope will grow strongly in years to come, such as S4 Capital. Alternatively, I might go for British shares I hope could pay me a stream of dividends in years to come, like Imperial Brands.
Why I’d invest today
But why would I want to buy shares today rather than waiting? After all, some growth shares may be cheaper a few months from now if the falls we have seen in markets like the US continue. The Imperial Brands share price is 27% higher now than it was a year ago. If I wait and am able to scoop the shares up at a lower price again in future, I might be able to earn a higher dividend yield than I could do by buying them today.
Although that is true, timing markets is hard at best, if not impossible. Instead of trying to time markets, I prefer to assess whether I can invest in what I think are great companies while they trade at an attractive price. If today’s price really does offer me good value, I do not worry if the shares become even cheaper in future.
Compounding high-yielding UK shares
Buying now also lets me benefit from a long-term timeframe when it comes to investing my pension pot.
That can help me build value over time. In the case of UK shares that pay dividends, that could help compounding work in my favour. In other words, the dividends might help me buy more shares that in turn pay more dividends.
For example, if I put £5,000 in shares with an average yield of 7.9% today and compounded the dividends, after 20 years my pension portfolio would have more than quadrupled in size even if Imperial’s share price was flat, as long as the dividend was maintained. That illustrates the power of time when investing.
Dividends are never guaranteed, though, just as no single share is certain to do well. £5,000 Is enough to let me diversify across a range of UK shares. That is exactly what I would do.
The post Here’s why I’d invest £5,000 in UK shares today to help boost my pension appeared first on The Motley Fool UK.
C Ruane has positions in S4 Capital plc. The Motley Fool UK has recommended Imperial Brands. 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 2022