The past performance of UK shares suggests they’ve been a sound means of building a large retirement nest egg. Certainly, they’ve experienced periods of decline, including the 2020 stock market crash. Furthermore, there’s no guarantee any stock or index will produce positive returns in future.
However, the high single-digit annual returns of the stock market indicate that investing regularly in a diverse range of companies could lead to a surprisingly large portfolio over the long run.
Regular investing in UK shares
Investing small amounts often in UK shares has been made easier in recent years by the increased availability of regular investment services. Many sharedealing providers now offer regular investment services that can cost as little as £1.50 per trade.
This makes the stock market more accessible to a broader range of investors. Certainly since commission costs are unlikely to prohibit even modest amounts of capital from potentially benefitting from the stock market’s long-term growth.
Of course, it may make sense to invest monthly, rather than weekly, in UK stocks. This further helps to reduce dealing costs. Furthermore, reducing risk could be a sound move.
A simple means of obtaining this goal is to diversify among a range of companies to limit the importance of specific stocks in a portfolio. Doing so also allows an investor to capitalise on a more diverse range of growth opportunities that may be beneficial to their returns.
Investing money in the right businesses
Clearly, deciding which UK shares to buy is always very subjective. However, the past performance of the stock market shows it has experienced cycles throughout its history. As such, seeking to take advantage of its inherent ups-and-downs could be a profitable strategy.
This could, for example, mean buying shares when they trade at relatively low prices during periods of economic uncertainty. And then seeking to hold them until such a time they trade at higher prices during a period of economic growth.
Furthermore, it may be a good idea to seek out the best companies in the most attractive sectors. For example, businesses with sound operating models, low leverage and strong management teams can be found by analysing industry data, reading company reports and assessing financial information. Such businesses may represent lower risk, as well as higher return potential, versus other UK shares.
Holding for the long term
Many UK shares currently face heightened risks as a result of the coronavirus pandemic. However, investing in the stock market always carries significant risks that can lead to losses.
As such, it could be prudent to take a long-term view when investing money regularly in the UK stock market. Indexes such as the FTSE 100 have experienced major declines and bear markets in recent decades. However, they’ve always previously recovered to post high single-digit annual total returns over the long run.
