In my view, now is a great time to be buying UK shares. In both the FTSE 100 and the FTSE 250, I think there are opportunities to make investments that can provide good long-term returns.
One reason for this is that interest rates are at their highest levels since 2008. But as Warren Buffett says, now isn’t the time to be holding onto cash to take advantage of better short-term returns.
Warren Buffett
Some people say cash is king, others say it’s trash. At the 2014 Berkshire Hathaway shareholder meeting, Warren Buffett gave his thoughts:
Should you invest £1,000 in 3i Group Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if 3i Group Plc made the list?
In 2008, I wrote an article saying, you know, that – everybody was saying cash is king. Well, cash may have been king if you used it, but cash was the dumbest damn thing you could possibly own, you know, if you weren’t going to use it. And people cling to cash at – usually at the wrong times.
Warren Buffett, 2014
Buffett’s point here is clear enough. While it’s important to have enough of it around, keeping cash for the long term isn’t a good investment idea.
Higher interest rates might make it tempting to hold on to cash. But it’s much better to be invested in assets that can keep generating a return even when rates come down – such as stocks.
REITs
The real estate sector has been affected by higher interest rates in a big way. The market value of properties has fallen, while the cost of financing growth through debt has increased.
As a result, real estate investment trusts (REITs) have seen their share prices fall significantly. These are companies that make their money owning and leasing properties.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
By law, REITs are required to distribute 90% of their taxable income to shareholders via dividends. This can make them a great way of earning passive income through property.
Different REITs focus on different types of properties, from housing and offices to warehouses and shopping centres. The one I’ve been buying shares in this week, though, owns something else.
Healthcare
When the share price fell below 92p earlier this week, I bought 125 shares in Primary Health Properties (LSE:PHP). The company is a REIT that owns 513 properties across the UK and Ireland.
It focuses on primary care facilities – such as health centres – that act as the ‘front door’ to the NHS. As a result, around 89% of the company’s rental income comes from one government or another.
Of course, the future of national health policy isn’t in the company’s hands. That introduces a degree of uncertainty and risk with the stock that investors should consider seriously.
There’s plenty to be positive about, though. The firm boasts strong occupancy ratios and the chances of unpaid rent are minimal given the nature of the tenants.
With the stock below 92p, the stock comes with a 7% dividend yield. I think this can grow over time, which is why I’m happy trading short-term interest on cash for a long-term investment return.
Time to buy stocks
Avoiding the temptation of hoarding cash when interest rates are high is difficult. I’m listening to Warren Buffett’s advice, though.
I’ll always make sure I keep enough on hand so that I’m not forced to sell my investments at the wrong time. But beyond that, I’d rather own UK shares.
