The recent stock market recovery has boosted the portfolios of many investors. For example, the FTSE 100 has made gains of around 10% in the past month.
However, the index and many other UK shares continue to trade significantly below their all-time highs. With the stock market having a solid track record of rallying after its declines, there may still be opportunities to benefit from its likely long-term growth.
Through investing £500 per month, or any other amount, in a diverse range of dividend-paying stocks at low prices, there may be opportunities for an investor to capitalise on the long-term rallies of UK shares across the FTSE 100 and FTSE 250.
Investing money in cheap shares after the stock market recovery
The recent stock market recovery has largely been due to improving investor sentiment. However, investors have maintained a cautious stance on a number of different sectors. They include industries such as banking, energy and travel.
Companies in those sectors are struggling at present to deliver improving sales and profit growth. As such, it’s possible to unearth cheap stocks within them, as well as other sectors.
Buying cheap shares in high-quality companies can be a profitable long-term move. They may offer scope for capital growth over the long run, while their solid balance sheets and competitive advantages may shield them from economic challenges in the present. As such, investing money in them ahead of a likely long-term stock market recovery could be a shrewd move.
Buying dividend stocks for more than a passive income
FTSE 100 and FTSE 250 shares that could benefit the most in a long-term stock market recovery may include dividend stocks. Currently, many UK shares offer relatively high yields after the stock market crash. However, they could produce more than just a passive income over the coming years.
Demand for UK dividend shares may rise in the long run. This is because low interest rates mean other mainstream assets such as cash and bonds provide disappointing returns. Similarly, high house prices mean the yields available on buy-to-let property may be somewhat unappealing.
Rising demand for high-yielding UK dividend shares could push their prices higher. And that will allow them to deliver impressive total returns in a long-term stock market recovery.
Diversifying across UK shares
Of course, investing money in UK shares ahead of a likely long-term stock market recovery may be a risky move in the short run. Recent gains for the FTSE 100 and FTSE 250 haven’t changed the economic outlook, with Brexit and coronavirus likely to negatively impact on UK shares over the near term.
Therefore, investing money in a wide range of stocks could be a shrewd move. It may reduce overall risks and help to provide a more attractive rate of growth in the coming years.
