Forget gold and Bitcoin! Here’s how I’d invest £20k in UK shares today to make a million

Peter Stephens
·3-min read
A depiction of the cryptocurrency Bitcoin
A depiction of the cryptocurrency Bitcoin

Many UK shares still trade down on their 2020 starting price after the stock market crash. By contrast, gold and Bitcoin prices have surged higher this year, as some investors have turned to alternatives to FTSE 100 and FTSE 250 shares.

However, the low prices of many stocks suggest they could offer superior returns compared to gold and Bitcoin. They could even produce a portfolio valued in excess of £1m over the long run.

Investing money in UK shares today

Investing money in UK shares could be a profitable long-term move. A number of FTSE 100 and FTSE 250 sectors offer a wide range of companies that trade on lower valuations than their long-term averages.

For example, banking stocks such as Lloyds, Barclays and HSBC continue to trade lower than their 2020 starting prices. Certainly, low interest rates will hamper their profit growth potential. But this seems to be reflected in their low share prices. Meanwhile, their improved financial situations over recent years may mean they’re in good positions to overcome short-term economic challenges.

Similarly, buying UK shares such as Tesco, Next and Kingfisher may provide an investor with exposure to the growing online retail sector. All three companies have invested heavily in online opportunities, which could provide them with competitive advantages over their sector peers. This may allow their investors to capitalise on long-term growth trends following the current economic crisis while such companies trade at low prices.

The high prices of gold and Bitcoin

While many UK shares trade at low prices, gold and Bitcoin have surged higher this year. For example, gold is up 18% year-to-date, while Bitcoin has gained 175% since the start of the year.

It’s clear from their growth that both assets have become more popular among investors. Gold offers defensive characteristics deemed attractive in an economic slowdown. Meanwhile, Bitcoin’s supposed lack of correlation with the wider economy seems to have attracted investors.

While they may continue to outperform UK shares in the short run, their high prices indicate they lack margins of safety. Therefore, on a long-term view, a portfolio of cheap FTSE 100 and FTSE 250 shares could outperform the virtual currency and the precious metal. Investors are able to purchase them from a low base to deliver capital appreciation.

Making a million

Investing £20k in UK shares could generate a portfolio valued in excess of a million. For example, assuming the same rate of return as the FTSE 100’s historic performance of 8% would mean a £20k investment becomes worth £1m in around 50 years.

However, by investing money in a diverse range of undervalued FTSE 100 and FTSE 250 shares today, it’s possible to outperform the market. In doing so, an investor can reduce the amount of time it takes £20k to become a £1m portfolio.

The post Forget gold and Bitcoin! Here’s how I’d invest £20k in UK shares today to make a million appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Barclays, HSBC Holdings, Lloyds Banking Group, and Tesco. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Tesco. 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 2020