In years gone by UK investors would often have had a large amount of their portfolio in UK companies. Investors tended to prefer putting their money into companies they were familiar with.
That’s changed, however. These days, the most familiar brands tend to be global, while more recently the UK has to some extent fallen out of favour with investors (particularly since the Brexit vote of 2016). But research suggests UK investors are turning back to their home market, the UK stock market. For instance, a Janus Henderson study of UK investment portfolios in the 12 months to March 2025 found a growing home bias, with the average UK allocation increasing from 19% to 21% over the period.
You can learn more about platforms you can invest with and compare the different options using our free and easy-to-use comparison tools.
The global markets volatility triggered by the US trade tariffs imposed at the beginning of April underlined the need for a globally diversified portfolio. But many investors will naturally want a decent slice of money in companies they know well. So, here’s what you need to know about investing in UK equities.
Favour funds
Tempting as it may be to trade the shares of individual companies, it’s not a good idea unless you really know what you’re doing and are able to absorb potentially significant losses. For most people, collective funds are the way to go. Most money goes into mutual funds in the form of unit trusts and open-ended investment companies (OEICs), but investment trusts are a good option too.
Size isn’t everything
When you invest in funds you get instant diversification, and you can increase this by investing in a range of different funds. There’s a vast range of investment funds and trusts that specialise in the UK. Some are very generalist, while others focus on large companies (i.e. those found in the FTSE 100 or FTSE 250) or small companies (often in the FTSE Small Cap index or Alternative Investment Market (AIM)), for example. While smaller companies tend to be riskier, as they’re not so well established or deeply researched, they also have the potential to grow faster and further than larger firms – don’t just stick to the FTSE 100 blue chips.
It’s ok to be passive
You can invest through both active and passive funds. The former take the approach most commonly associated with investing, taking decisions that give them a chance of outperforming a benchmark index and/or their peers. Passive funds (such as Index Trackers and Exchange Traded Funds (ETFs)) instead simply follow or replicate a certain index, with the value of your investment linked directly to the rise and fall in the relevant market or index. We cover the active v passive investing debate to help you understand.
Beware your own bias
You can spread your money across different funds and types of UK companies, but it’s also important to avoid what’s referred to in behavioural science terms as familiarity bias. This tends to lead investors to overestimate their knowledge of their domestic market or companies, and investing too much in their home country at the expense of other areas.
So, even if you want your portfolio to lean towards UK companies, make sure it also includes a spread of funds that invest outside the UK. These can be generalist funds, such as those in the Global Growth or Emerging Markets sectors, or funds that focus on specific countries, regions or sectors. And don’t forget to include funds that invest in other assets, such as property, fixed income (i.e. government and corporate bonds) and commodities.
Don’t underestimate dividends
One of the advantages of investing in UK companies is that many provide a regular income in the form of dividends. The FTSE 100 has delivered an average dividend yield of 3.9% a year over the past 15 years, significantly higher than indices including the S&P 500. But it’s not just about income – reinvesting your dividends allows you to benefit from the power of compounding.
Investment trusts can be especially useful here, due to their ability to retain up to 15% of annual earnings in reserve in order to be able to keep paying dividends during leaner times. This mechanism has enabled 20 investment trusts to increase their dividends each year for 20 years or more, according to the Association of Investment Companies (AIC), with several doing so for more than 50 consecutive years.
Keep an eye on it
Once you’ve got your portfolio set up it’s worth reviewing it at least once a year (but don’t check it every day – that might just make you anxious). Keep track of how your investments are performing and consider rebalancing your portfolio now and again so that it remains aligned with your investment goals. We have some tips on how to review your investments to help you get started.
Be patient
Investing is a long-term game, and it’s important to be patient. The stock market can be volatile in the short term, but over the long term, it has historically delivered strong returns. By staying invested and resisting the urge to make frequent changes to your portfolio, you can benefit from the power of compound interest and the long-term growth of companies and industries in the UK and beyond.
Where to buy funds
If you have a financial adviser, they can help you put together a portfolio that suits your needs, circumstances and objectives. These days most UK investors buy their investments through fund supermarkets or online platforms, however. Learn about and compare the different options using our free and easy-to-use comparison tools.
Photo by Jakub Żerdzicki on Unsplash
