Even after the recent stock market rally, it is still possible to find cheap UK shares to buy today. Investing money in them regularly through a tax-efficient account such as a Stocks and Shares ISA could produce high returns over the long run.
Of course, there is never a guarantee of profit from holding any stock. The 2020 stock market crash showed that a bull market can quickly disappear.
However, over the long run, the track record of UK stocks shows that they could be a sound way to obtain a large lump sum.
Buying cheap UK shares today
Buying cheap UK shares right now could provide greater scope to generate high returns in the long run. The track record of the stock market shows that the valuations of its members have often reverted to their long-term averages over time. As such, today’s undervalued shares could be among those companies that benefit the most from a likely long-term economic recovery.
Certainly, some cheap stocks may not be worth more than their current prices. For example, they could have poor return characteristics or weak finances. Therefore, it is important to not only analyse businesses before buying them, but also to diversify across a broad spectrum of companies, sectors and geographies. This may lower overall risks and improve returns.
Investing money regularly in undervalued stocks
Buying cheap UK shares on a regular basis can lead to high returns over the long run. Even if an investor matches the long-term stock market average total returns of around 8% per year, they could build a large portfolio from a realistic monthly investment.
For example, buying £250 worth of shares per months at an 8% annual total return could produce a portfolio worth around £240,000 over 25 years. Clearly, there is never any guarantee that this return will be produced. However, through buying undervalued shares in high-quality companies, it may be possible to obtain attractive returns over the long run.
Using a Stocks and Shares ISA to buy stocks
A Stocks and Shares ISA could be a simple and worthwhile means of investing money in cheap UK shares. Costs are generally low compared to other retirement accounts, while tax advantages mean that net returns may be significantly higher than using a standard share-dealing account over the long term.
As such, with many UK shares trading at low prices following the 2020 stock market crash, now could be an opportune moment to start buying them regularly. This may not produce a positive return over any time period. However, the past performance of the stock market and the potential for today’s undervalued stocks to rise in price could mean that a portfolio grows at a relatively fast pace in a long-term stock market recovery.
