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These days, the FTSE 100 index of main UK shares has been performing effectively. So effectively, in truth, that it hit a brand new all-time excessive in current weeks.
Understandably, that ought to offer buyers pause for thought. Would possibly British shares now be overvalued, probably even heading for a crash?
That’s, as at all times, a risk – simply as it’s also a risk that costs will rise even farther from right here.
No matter occurs to the flagship blue-chip index, I see a number of causes to imagine that there may nonetheless be cash to be created from investing in UK shares.
A market of particular person shares
The FTSE 100 tells us what a set of shares within the nation’s largest firms is doing.
However it doesn’t inform us how every of these particular person shares is performing, not to mention these outdoors the FTSE 100.
For instance, think about Diageo (LSE: DGE), a longstanding FTSE 100 constituent. Its shares have had a depressing 2025 to date. They’ve additionally carried out woefully over the previous 5 years.
That doesn’t essentially imply that Diageo shares are usually not overvalued. Regardless of how far down a share goes, it may possibly nonetheless go down additional (till it hits zero, that’s).
Diageo clearly has challenges, from weak demand for premium spirits in key markets to a longer-term development of youthful customers shunning alcoholic drinks.
Nonetheless, it’s among the many UK shares I’ve been shopping for this yr exactly as a result of I see it as undervalued from a long-term perspective. It’s massively worthwhile, has a steady of premium manufacturers, and a demonstrated experience in constructing model loyalty.
Dividends additionally matter
One other manner through which I feel there’s cash to be created from proudly owning UK shares within the present market is as a result of energy of dividends.
FTSE 100 shares alone pay out effectively over £1bn per week on common in dividends.
Dividends are by no means assured to final. However many firms pay them repeatedly for many years.
The truth is, some companies even elevate their dividend per share yearly for many years. Diageo is one such share – and its 4.5% dividend yield is at the moment effectively above the FTSE 100 common.
Constructing in a margin of error
With the inventory market in clover, it will also be useful to recollect some phrases of knowledge from billionaire investor Warren Buffett.
He takes a long-term strategy to investing, aiming to purchase shares in what he sees as nice companies at enticing costs, then holding them for years or a long time.
Alongside the best way, after all, share costs might transfer round significantly.
When valuing shares, Buffett at all times tries to construct a ‘margin of security’ into his calculations.
Doing that implies that, even when the share experiences some steep value falls whereas he holds it, so long as his long-term funding thesis in regards to the firm has not modified, he needn’t lose sleep over it.
