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Recently, the FTSE 100 index of main UK shares has been performing properly. So properly, the truth is, that it hit a brand new all-time excessive in current weeks.
Understandably, that ought to offer traders pause for thought. Would possibly British shares now be overvalued, presumably even heading for a crash?
That’s, as all the time, a chance – simply as it’s also a chance 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 might nonetheless be cash to be comprised of 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 corporations is doing.
Nevertheless it doesn’t inform us how every of these particular person shares is performing, not to mention these exterior the FTSE 100.
For instance, contemplate 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 usually are not overvalued. Irrespective of how far down a share goes, it could 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 pattern 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 by which I feel there’s cash to be comprised of proudly owning UK shares within the present market is because of the energy of dividends.
FTSE 100 shares alone pay out properly over £1bn per week on common in dividends.
Dividends are by no means assured to final. However many corporations pay them often for many years.
Actually, some companies even increase their dividend per share yearly for many years. Diageo is one such share – and its 4.5% dividend yield is at the moment properly 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 method to investing, aiming to purchase shares in what he sees as nice companies at engaging 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 all the time tries to construct a ‘margin of security’ into his calculations.
Doing that implies that, even when the share experiences some steep worth 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.
