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I think investing in UK stocks is the best way I can make enough money for my retirement.
New-age assets like cryptocurrencies are too volatile for my liking. Savings accounts like Cash ISAs have their place, but don’t provide the levels of interest that could make a difference to my long-term wealth.
Stock markets, on the other hand, have been around for centuries. And they have a great track record of providing above-average returns. UK shares for example have provided an average yearly return of 10% during the past decade.
Making millions
I’m not content to make that average return, however. Call me greedy but why would I?
Stock markets can go up and down. For this reason there’s no guarantee that I’ll make any sort of positive return, let alone one near that 10% average.
But with the right investment strategy it’s possible to make spectacular returns. The hundreds of Stocks and Shares ISA millionaires that have emerged over the past decade are proof of how this is possible.
I’m hoping to make a minimum average annual return of 12% from my portfolio.
Investing like Mr Buffett
One way I’m aiming to do this is by following the investment lessons of Warren Buffett. This world-famous investor has made an impressive average yearly return of 20% since he began decades ago.
Some of his key investment principles that I use for my own portfolio include:
- Investing in undervalued businesses that have scope for long-term share price appreciation
- Searching for beaten-down bargains following stock market falls
- Prioritising buying quality over distressed, cheaper companies
- Looking for businesses with competitive advantages (otherwise known as ‘economic moats’)
- Staying patient and buying stocks in order to hold for the long term, perhaps even decades
- Doing as much research as I can fit into a day
Starting with no savings
Taking the time and effort to devise a sound investment strategy can deliver outstanding returns, as Warren Buffett has shown. It can even drive new investors to make significant wealth from a standing start.
Let’s say that someone aged 30 has nothing in the way of savings or investments. But they have £150 to invest each month in UK stocks.
We’ll also assume they decide to reinvest their dividends. This gives them a chance to supercharge their wealth through the process of compounding (which allows me to earn money on my original investment and on any dividends).
£1,097,694.96!
Now let’s say that they manage to hit that magic 12% average annual return that I’m currently gunning for.
By the time that person hits their State Pension retirement age of 68 they’d have joined the millionaire’s club. They’d have made a cool £1,097,694.96 to be exact!
That’s significantly more that the £655,278 they’d have made with that average annual return of 10% that UK stock investors make.
As I said earlier, stock investors aren’t guaranteed to make significant long-term wealth and there’s no guarantee that they won’t lose money either. But following the strategies of successful ones like Warren Buffett can take them several steps closer.
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