Investing money in UK shares may mean accepting paper losses in the short run. After all, the recent stock market rally could give way to a market decline should risks such as Brexit negatively impact investor sentiment in the short run.
However, over the long run, a strategy of buying high-quality companies from across the FTSE 100 and FTSE 250 while they trade at low prices could lead to impressive returns. They could improve an investor’s financial prospects through producing a surprisingly large ISA in the coming years.
Buying UK shares that are struggling
Of course, the cheapest UK shares to buy today are likely to be those companies facing tough operating conditions. For example, airlines such as easyJet and IAG have recorded extreme share price declines during the course of 2020 due to the sharp fall in demand for air travel.
They may also experience more volatility in the short run. However, both companies appear to have the financial means to survive further grounding of flights in the coming months. They then could deliver improving sales and profitability the allow them to command higher share prices.
Certainly, both stocks are relatively high risk compared to other UK shares. But their wide margins of safety may account for near-term challenges, and may underrate their long-term prospects in a sustained stock market recovery.
Investing money in dividend stocks
Dividend stocks may also offer outperformance of other UK shares in a long-term stock market recovery. Companies such as SSE and Imperial Brands have yields of 5% at the present time. This suggests they could become increasingly popular at a time when low interest rates look set to remain in place for a prolonged period.
Furthermore, SSE is investing heavily in renewables. They may align its growth outlook with that of the world economy, which is increasingly focused on a green recovery from the 2020 recession. Although Imperial Brands faces a tough set of operating conditions due to volume declines, its refreshed strategy may yield a stronger financial performance over the coming years. Especially as it seeks to improve its performance in next-generation products, such as e-cigarettes.
ISA investing for the long term
Of course, UK shares such as those discussed above could experience uncertainty in the short run. The vast majority of sectors face challenging prospects that could get worse before they improve.
However, the track records of the FTSE 100 and FTSE 250 suggest they offer long-term recovery potential from their current price levels. They’ve always made new record highs following even their very worst bear markets.
As such, building a diverse ISA portfolio and using a long-term approach could be a profitable move. It may lead to an investor improving their financial position after what has been a challenging 2020.
