2020 has been a tough year for UK shares, but cash is having a far worse time of it. While the stock market will recover at some point, interest rates look set to stay low for years, making it impossible to generate any kind of return on your savings.
That’s why most of my long-term wealth is invested in UK shares, and will stay there. Unfortunately, millions of Britons are doing the exact opposite, and leaving their money in the bank getting a near-zero return.
We now have the biggest cash pile on record, with an incredible £1.5trn stashed away, according to research from Janus Henderson Investment Trusts.
I believe that leaving too much money in cash can seriously damage your wealth over the longer run. UK shares have been volatile, but they remain one of the best ways of funding an early retirement, or any retirement at all. Cash won’t cut it over time.
I’m into UK shares, not cash
Everybody needs a stash of emergency cash. This should be enough to cover six months of earnings, in case of illness or redundancy. The pandemic has underlined the importance of having that safety net.
However, you don’t want to leave more than that idling in the bank, where its value will fall in real terms, after inflation.
Fear of a stock market crash puts a lot of people off investing in UK shares. It shouldn’t though. You don’t actually lose money in a crash, unless you panic and sell your investments at the bottom of the market.
All you need to do is sit tight and wait for the recovery. Stock markets always bounce back, given time. You just have to be patient.
Many experienced investors even look forward to a crash, because it gives them the opportunity to buy UK shares at reduced prices. There’s another benefit to falling share prices.
If you reinvest your dividends for growth (as you should), they’ll pick up more stock at the lower price. Again, this should turbo-charge your retirement plans.
It’s raining gold today
I think you have a good opportunity to buy UK shares right now. The FTSE 100 is trading around 25% lower than before the March crash. Everywhere you look, there are bargain UK shares.
The world’s greatest investor, Warren Buffett, urged investors to take advantage of moments like these, saying: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” I reckon right now’s a good time to reach for the bucket.
Covid-19, US electoral uncertainty and Brexit have hammered stock markets and given investors a once-in-a-lifetime opportunity to buy UK shares at reduced prices.
Personally I’d invest in a spread of top FTSE 100 companies, focusing on those with strong balance sheets, steady revenues, reliable dividends, and a strong defensive ‘moat’ against competitors.
I’m relying on UK shares to help fund my attempts to get rich and retire early, while keeping only the bare minimum in cash.