The simplest way of investing in the UK shares is to buy a FTSE 100 or FTSE 250 tracker and be done with it. With a low-cost exchange traded fund (ETF) I get access to scores of top UK companies in an instant. I also cut back on trading charges, while annual management fees are tiny.
There is a lot to be said for passively following an index. That’s how I started out. My FTSE 100 and FTSE 250 trackers are solid building blocks for my portfolio, but now I’m focused on buying individual UK shares instead. Direct equities offer me three advantages.
1. It’s my chance to beat the market
With a tracker I will never beat the market, but will never underperform it either. That’s great as a starting point, but now I want more.
By investing in individual stocks, I can potentially turbocharge my returns. Rather than buy all FTSE 100 stocks in one fell swoop, good or bad, I can build a balanced portfolio from what I reckon are the best opportunities on the market.
If I choose wisely, the rewards can be impressive. This is a tough time for the UK economy, and the lead index may shuffle sideways for a while longer. Yet some companies always fare better in a recession than others. By singling them out, I can boost my chances of generating a positive return in negative times.
The obvious downside is that if I choose badly, I will underperform the market. That is a risk, but one I’m willing to take and will offset by investing in a dozen or so UK shares and holding for a minimum of 10 years, or longer.
2. So many UK share bargains out there
A feature of the FTSE 100 today is that a host of top companies are trading at dirt-cheap valuations, while offering sky-high yields. Naturally, I am approaching with caution, as many of these stocks have been hit hard by this year’s volatility.
Several are likely to prove value traps, and their share price may idle while the dividend could prove harder to sustain. Yet when I look at some of the bargains in the banking, insurance, mining and house building sectors, I can’t resist.
I can’t pick out bargains when buying a tracker, but get the index wholesale, which is much less exciting. Again, the risk of buying individual shares is greater than choosing a tracker, but so are the potential rewards.
3. It’s good, clean, active fun
Buying and holding individual company stocks is challenging and exciting. It allows me to try out my stock picking skills, and see what I’ve got in my locker.
Buying a tracker doesn’t require much skill. Which is of course their great appeal. But whisper it, passively tracking shares gets boring after a certain point. When buying individual UK shares, I really feel like I’m getting stuck into investing. I bought Persimmon last month and it’s up 17.4% since.
It could crash in an instant, of course, but its early success gives me a warm glow that a tracker would take years to deliver.
This post was originally published on Motley Fool
