It is the latest investment bank to become bullish on the UK. On Tuesday, Goldman’s portfolio strategy team published a note titled “Why the UK is a buy”, advising their clients to buy the UK stock market.

Although Brexit negotiations are taking longer than anticipated, analysts at Goldmans believe that a last minute deal will be struck with the European Union. The bank also believes that the UK will experience a sharp economic recovery in 2021. This, in turn, should support UK domestic stocks.

Bullish on UK shares

I do not think it surprising to see Goldmans turn bullish on UK stocks. UK shares are looking cheap these days. At time of writing, the FTSE 100 and FTSE 250 indexes have fallen by 15% and 10% in 2020, respectively.  

Many of the blue-chip companies that make up the FTSE 100 derive their earnings overseas. As a result, sterling impacts the performance of this index. The FTSE 250 offers a more UK-centric performance, as most companies derive their revenue domestically.

Recovery in 2021

Goldmans believes that the UK is well placed with regard to the Covid-19 vaccine distribution. The bank expects widespread distribution of the vaccine across Europe in the first quarter of 2021. This would result in a large portion of the population being vaccinated by the end of June.

Goldman’s economists expect UK growth of 7% in 2021 and 6% in 2022. This is significantly above the consensus view. While I believe UK shares are cheap, I am not as optimistic as Goldmans. I think UK shares are still likely to be volatile as the economy recovers from the global pandemic.

Other banks

Goldman Sachs follows other banks who have recently turned positive on the UK market. Morgan Stanley has made the UK stock market its key investment call for 2021.

Citi recently told its investors to consider making a short-term “aggressive” bet on UK shares. UBS has a price target of 6,800 for the FTSE 100 by June 2021. Its analysts consider the UK as its most preferred stock market.

My view

While I could add the iShares Core FTSE 100 and iShares FTSE 250 ETFs to my portfolio, I think it is too early to be buying UK shares.

Covid-19 has hit the UK stock market hard. The large fall means that UK shares have more headroom to recover that other international stock markets such as the US, which have fared better through the pandemic.

Although the UK stock market has recovered from its lows in March, I believe there is still a large amount of uncertainty. Vaccines are likely to be rolled out next year but given the UK government’s past performance I don’t think this will be a smooth distribution. A Brexit trade deal has still not been agreed, which makes me nervous. On this basis, I expect the UK stock market to fall from its current levels and I will be buying on the dips.

It’s not that difficult

This is a massive shame, especially since the government gives us all a great incentive through the annual £20,000 Stocks and Shares ISA allowance, which allows you to take all your returns free of income tax and capital gains tax.

Many people simply don’t know where to start. That’s understandable, as there are hundreds of different companies listed on the London Stock Exchange, and buying individual stocks is simply too risky for many.

So let’s keep things simple.

Choose your platform

Your first step is to open an ISA account with one of the major UK trading platforms, here’s a list of some of the best. You’ll need proof of ID and either a current account or debit card, and can start trading within a few minutes.

That still leaves the other problem. What do you buy? For beginners, I would recommend a passive investment fund that tracks the fortunes of the UK stock market.

The FTSE 100 index of top blue-chip stocks is by far the best known index as it gives you exposure to the UK’s largest companies. Like any market, it will be volatile in the short run, rising and falling as investors rush to buy or sell shares.

Some companies will do well, some will do badly. One or two might even go bust. By investing in a spread of stocks, you have a massive cushion if one fails.

Patience is the ultimate virtue

Never invest in the stock market for less than five years and ideally you should leave your money for 10, 20, 30, 40 years or more, the longer the better. That way you don’t have to worry about short-term volatility, which always passes if you give it enough time.

The easiest way to start is to invest in a dirt cheap FTSE 100 tracker. Exchange traded funds (ETFs) are hugely popular because you can buy and sell them in seconds like any stock, and the charges are as low as can be.

Core holdings

For example, the iShares Core FTSE 100 UCITS ETF has no upfront charge and an annual fee of just 0.07% a year. The HSBC FTSE 100 Index tracker runs it close with charges of 0.18% a year.

You could widen the net by also buying the iShares FTSE 250 UCITS ETF, which invests in the next 250 largest UK companies, which often grow faster than large-caps. It charges 0.4%. The SPDR FTSE UK All-Share UCITS ETF widens the net further by investing in around 650 listed UK companies, charging 0.20%.

Make sure you invest all your dividends back into the funds for growth. Over the last 10 years, the average annual return from the FTSE 100 with dividends reinvested was 8.3%, but if you took the dividends instead, that falls to 4.3%.

Top up your fund whenever you can, otherwise just sit back and leave your money to grow, ignoring short-term stock market upheavals. What could be simpler than that?

Fees cost

ETFs have come into their own in recent years as investors wake up to the damage that high annual management fees inflict on investment fund performance. Say you invest £1o0,000 in a portfolio of actively-managed funds charging 1% a year. If it grows at 5% a year, you will have more than doubled your money to £219,112 over 20 years. However, if your ETFs charge 0.2% on average (and some charge as little as 0.03%), you will have £255,402, an incredible £36,290 more, assuming the same rate of fund growth.

If managers could regularly beat the market they would justify their higher costs, but three-quarters don’t. Investors are waking up to the message and these three ETFs are particularly popular, numbering among the top five most traded in the UK.

Vanguard performance

The first is the Vanguard S&P 500 Growth ETF (LSE: VUSA), which does exactly what it says on the tin, tracking the S&P 500. The total expense ratio is a minuscule 0.15% a year, which Vanguard claims is 87% lower than the average charge on funds with similar holdings.

Over five years it’s up 140%, according to Trustnet.com, piggybacking on the booming US market. Look at this: the average actively-managed fund in the Investment Association North America sector has returned notably less at 113%, according to Trustnet.com. The charges will be higher as well.

iSpy iShares

You won’t be surprised to discover the second most popular ETF among British investors is the iShares FTSE 100 ETF (LSE: CUKX), which tracks the UK benchmark index of blue-chip stocks. Its ongoing charges are even lower, at just 0.07%, and it has grown 52% over five years.

Unit trust trackers have also become cheaper. For example, HSBC FTSE 100 charges just 0.18% a year. However, on £10,000 invested for 20 years, this is the difference between ending up with £25,638 (iShares) or £25,298 (HSBC). That slither of a charging difference has amounted to £340.

Mid-cap winner

In a single low-cost swoop, you’ve now bought into 600 of the largest companies in the Western world, big names such as Apple, Microsoft, Exxon Mobil, Amazon and Facebook in the US, and HSBC Holdings, Royal Dutch Shell, BP and British American Tobacco in the UK.

My third suggestion for your early retirement ETF portfolio is the iShares FTSE 250 (FTSE: MIDD), the fifth most popular ETF in the UK. This mid-cap index has thrashed its blue-chip counterpart lately, and the ETF is up 100% accordingly. Now you have a spread of smaller companies to go with your retirement portfolio’s big boys. However, the total expense ratio is slightly higher at 0.4%. That’s actually more than the HSBC FTSE 250 tracker, whose ongoing charges total 0.18%.

ETFs may be cheap, but they’re not always cheapest. Yet when their performance is so strong, they certainly are very appealing.