Why I’m loading up on UK shares in 2023

Does the UK represent the best investment on the planet today? I would be forgiven for thinking that after I saw the FTSE 100 take over its all-time high to top 8,000 last month.

But the country is also battling a cost-of-living crisis, while a recession is just on the horizon. So which way will the next market head be?

Personally, I am confident about UK stocks for 2023. And the reason is because of the type of companies that exist in this country.

At FTSE 100 – the hundred largest companies listed in the London Stock Exchange – considered a ‘defensive’ index. That means that these companies tend to perform as well or better in difficult economic conditions.

It’s easy to see this by looking at last year. In 2022, a difficult year for most markets, the FTSE 100 outperformed like-for-like US S&P 500Germany DAX 40 and France CAC 40.

This has resulted in good results in what has been a tumultuous year for investors around the world. So what kind of companies in Footsie do I want for 2023?

A ‘mature market’ is a powerful remedy for tough times

One company that looks strong today is a financial services company Legal & General (LSE: LGEN). It is a £15bn market capitalization company that has stood the test of time, having been in operation since 1836.

Importantly, companies provide services that are needed no matter what the economy does. In tough times, people still need pensions and insurance products, and this is what makes companies ‘defensive’.

But not only that, the size and age of the company means it operates in a ‘mature market’. This is important because although there is less room for growth, there is more focus on returning cash to shareholders through dividends.

And in the case of Legal & General, shareholders now receive a hefty 7.3% payout. So a £1,000 share in a company would return £73 a year, and 10 years with the same dividend would increase my share to over £2,000.

Although it should be noted that dividends are not guaranteed and ‘defensive’ stocks can be profitable in good times. This is another reason why I try to hold different types of companies in my portfolio.

But there is one more reason why I plan to open up in Legal & General and other English shares in 2023, and that is the problem of inflation.

Indefinable rate of inflation

The Consumer Price Index – a popular measure of inflation – has remained around or above 10% since July last year. If those rates stay, they’ll take a wrecking ball to anyone’s cash savings.

An inflation rate of 10% in a year means that money has 9% less in terms of things it can buy. If I keep my money in cash, I will lose 9% in a year. In seven years, I have lost 50% of my money. As Warren Buffett famously said: “Inflation deceives us all”.

And this is one of the other reasons why I think that UK shares are what I should invest in now, just to prevent the damage inflation can do to my savings.