Buying top British stocks may not have been a profitable move for UK investors over the last couple of years. The 2020 stock market crash may have erased most of your gains, or could even have left you with paper losses on some of your holdings.
However, the stock market’s long-term prospects suggest that it offers investment appeal relative to other assets. Furthermore, with many high-quality companies trading at low prices, now could be the right time to buy FTSE 100 and FTSE 250 shares. They could boost your chances of making a million.
High-quality British stocks
Despite an uncertain economic outlook, there are a wide range of high-quality British stocks available to purchase at the present time. In many cases, they have competitive advantages within their industries, as well as dominant market positions. This suggests that they are likely to produce rising profitability as the prospects for the world economy improve.
While this may currently seem to be a distant prospect, measures such as fiscal stimulus and an accommodative monetary policy could provide support to the UK economy. With other major economies following similar strategies, the outlook for the world economy may improve significantly over the coming years. In doing so, it would follow a common theme of recovery following recessions that has always been present in the past, and is likely to persist in future.
Cheap shares
As well as the potential for improving financial performance, British stocks currently offer good value for money in many cases. For example, investor sentiment towards sectors such as banking, travel & leisure and energy is exceptionally weak at the present time. Certainly, such industries face difficult prospects, but they are unlikely to remain in place in perpetuity.
Therefore, buying shares when they are cheap could be a shrewd move. It may enable you to obtain wide margins of safety on your holdings that translate into higher long-term returns. Following this strategy has generally been successful in the past. For example, indexes such as the FTSE 100 and FTSE 250 have recovered from recent downturns such as the dotcom bubble and global financial crisis. Investors who purchased undervalued shares prior to the stock market’s recovery are likely to have generated impressive returns.
Accessibility
It has never been easier to build a portfolio of British stocks. Online share-dealing has reduced the cost of buying and selling so that smaller investors can obtain a diversified portfolio. Meanwhile, tax-efficient accounts such as ISAs are cheap to administer and simple to use.
On a relative basis, UK shares appear to offer a sound long-term investment outlook. For example, investing £500 a month in stocks could produce a £1m portfolio within 35 years, assuming an 8% annual growth rate that is the same as the FTSE 100’s compounded return since inception.
Therefore, rather than holding other assets such as cash and bonds, building a portfolio of high-quality British stocks while they trade at low prices could be a sound means of making a million.
