Despite an uncertain economic outlook, now may be the right time to start buying cheap UK shares on a regular basis. Over time, they have the potential to deliver impressive returns that could produce a surprisingly large nest egg.
When undertaken through a tax-efficient account such as a Stocks and Shares ISA, the total returns on offer from FTSE 100 and FTSE 250 shares could prove to be very attractive relative to other popular assets.
Regular investing in cheap UK shares
Buying cheap UK shares on a regular basis could be a sound means of capitalising on the economy’s uncertain future. At the present time, it is unclear whether the stock market’s recent rebound will continue, or if it will experience a second market crash. Therefore, through buying shares regularly as opposed to investing a lump sum, you may be able to take advantage of potentially lower stock prices over the coming months.
In the long run, the return potential of the stock market has historically been relatively high. For example, the FTSE 100 has delivered a total return of around 8% per annum since its inception in 1984, despite experiencing numerous downturns along the way. Therefore, even though the current low ebb in many company valuations may persist over the short run, in the long run there is a very good chance of recovery for the wider market.
Portfolio management
Regularly investing in UK shares may also help you to overcome the challenges faced by investors in a volatile market. Buying shares, only for them to fall in value soon after purchase, can be a demoralising experience for any investor. It can cause worry and fear that makes it difficult to think clearly when deciding how to invest your cash resources.
Through investing smaller amounts more often, you can overcome a large part of this difficulty. Even if your investments decline in value in the short run, you may have peace of mind in knowing that their fall enables you to buy at lower prices next week or next month. And, with the stock market having strong recovery potential, it can produce a surprisingly large return in the long run.
Making a million
Assuming that UK shares produce an average return of around 8% per year over a period of 30 years, as per the FTSE 100’s historic performance, you could obtain a portfolio valued at £1m by investing £750 per month.
Even if you do not have that amount available to invest, or if you have a shorter timeframe, investing regularly in a tax-efficient account such as a Stocks and Shares ISA can be worthwhile. It could improve your financial prospects and help you to enjoy a greater amount of financial freedom in the coming years.
