The stock market crash has seen the value of UK shares fall. Year-to-date, the FTSE 100 has fallen by roughly 19%. I believe this has opened up a great opportunity for long-term investors to make a million by buying cheap shares.
Reaching £1m is an ambitious target, but one that I feel is achievable. Of course, it will take time and patience.
Is making a million from buying UK shares possible?
Now could be a great time to start investing in cheap shares. The low valuations of some FTSE 100 shares and the recovery prospects for the economy could ultimately return wealth to investors.
As a rough gauge, an 8% annualised return from the FTSE 100 should be achievable for long-term investors. With this return, making £1m from the market isn’t wildly unrealistic. It could be entirely achievable for those with some cash to spare.
Buying cheap UK stocks
With an 8% annualised return, investing a regular sum like £750 a month in UK shares would take 30 years to reach the goal of £1m. It’s interesting to note that, in this example, the deposits would only amount to £270,000. The balance is made up of interest gained on the investment over the period.
Increasing the regular sum to £1,000 a month will get you there quicker, cutting the time taken to reach £1m by four years.
Although many UK shares are trading at low valuations on the FTSE 100, there is sometimes a good reason. These could include weak balance sheets or a bleak outlook. It pays to be careful.
Worried about investing in FTSE 100 shares?
If you’re a long-term investor, the chances are that you’ll be investing through numerous market crashes. In the past, there’s usually been one roughly every decade. This is probably enough to scare some potential investors off.
But I think this should be seen as an opportunity to buy some of your favourite UK shares at cheap prices.
An actual realised loss on the stock market is only made once the shares have been sold. If the markets dropped, but the fundamentals of the businesses I have a position in haven’t changed, then I probably wouldn’t sell my holdings. This is just a paper loss.
It’s worth keeping in mind that every time the FTSE 100 has fallen in value in the past, UK share prices have eventually recovered.
When legendary investor Warren Buffett bought his first shares in 1942, America was suffering in the Pacific war zone. As he later said: “Each day’s headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail”.
Back then, Buffett had faith in the American economy. Today, I have faith that the FTSE 100 will recover. By buying UK shares now, I believe long-term investors will reap the rewards.
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T Sligo has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.