I’d drip feed £500 a month into UK shares as I aim to retire in comfort

Worried about retirement? I think investing in UK shares can help an investor like me build a comfortable nest egg.

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home

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Investing in UK shares today could be an exceptional opportunity to amass substantial retirement wealth. The economic turmoil currently plaguing the market is creating a lot of uncertainty, dragging stock prices down. But when thinking in the long run, our current situation is ultimately short term. And there are plenty of high-quality businesses capable of weathering the storm trading at significant discounts, I feel.

To quote famous investor Nathan Rothschild, “the time to buy is when there’s blood in the streets”. And the best part is it doesn’t take much money to build a valuable portfolio. Even for a 40-year-old with no savings, investing as little as £500 each month can achieve a comfortable retirement.

Using UK shares to build wealth

The stock market is often perceived as a casino, especially when glimpsing the world of trading. And there’s some truth to it since, in the short term, stock prices are driven by mood and momentum. But in the long run, UK shares follow the underlying business. If profits go up, the stock price eventually follows, and vice versa.

Looking at the last 30 years, the FTSE 100 has generated an average return of around 8% annually through a combination of share price growth and dividends. Meanwhile, the more volatile FTSE 250 has hit a bigger 11.3%.

That certainly doesn’t sound huge in isolation. Yet it’s more than enough for patient investors. Imagine if I’m starting from scratch at the age of 40 and planning to retire at 65. £500 invested each month int a FTSE 250 tracker generating an 11.3% annualised return for 25 years builds a portfolio worth £830,418 – not bad at all.

Obviously, there are some caveats. As we’ve seen this year, stocks can and do have the occasional meltdown. And depending on the timing of the next correction or crash, my portfolio could be worth considerably less. Plus some stocks make bad investments even in good times. After all, nothing is risk-free, especially not investing in UK shares. Yet that doesn’t mean it’s not worthwhile, in my opinion.

Maximising returns with stock-picking

Buying an index tracker has a host of advantages. It’s a relatively simple process that instantly diversifies a portfolio with a range of businesses and lets investors put their portfolios on autopilot. Plus, with technological innovation, the management fees are often negligible.

The only issue is the level of returns. The aforementioned 11.3% is nothing to scoff at, but picking UK shares individually makes it possible to hit higher return figures. Even if it’s by just a few extra percentage points, that can make an enormous difference in the long run. Let’s say I can hit an average return of 14%. In that case, my previously described portfolio would be worth around £1.35m in the same period. That’s certainly a more luxurious retirement fund.

Of course, going down this route comes with more risk. Identifying and analysing winning stocks is a craft that, like anything, takes years to develop. Reading and understanding financial statements is one thing. But remaining calm when a stock price suddenly plummets is another.

As I said, the stock market is chaotic in the short term. But for those capable of spotting the buying opportunities when everyone else is blinded by fear, immense wealth can be generated.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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