Forget saving! I’m buying discounted UK stocks to try and get rich

Dr James Fox explains his strategy to build wealth over the long run by investing in discounted UK stocks amid the current dip.

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The FTSE 100 might be pushing up towards 7,500, but many UK stocks are still trading at considerable discounts. And while it may feel like a challenging time to invest, the collapse of many UK share prices has handed British investors a rare opportunity to supercharge their portfolios.

I’d rather buy them than save in a Cash ISA or savings account. Both of those have their place, of course, and my returns there are guaranteed. But they won’t make me rich.

Investing amid volatility

As noted, many parts of the stock market are still underperforming. These include retail, travel, housebuilding and even banking. It may seem like an inopportune time to start investing but, equally, these discounted share prices provide attractive entry points.

It’s also worth remembering that we’ve been through volatile times before, and the market has always recovered. The FTSE 100 is actually three times larger today than it was 30 years ago. The index has historically provided an annual return of around 8% under normal market conditions.

Compound returns

Compound returns is certainly my strategy for getting rich from my investments. This is essentially the practice of investing in stocks paying a dividend and allowing me to earn interest on my interest. The longer I leave it, the more money I have, as returns grow exponentially over time. 

So if I started with nothing and invested £10,000 every year, assuming an 8% annual return, after 30 years I could have over £1m. That’s not guaranteed and I may make less than I hope for, but it’s clearly a good way of doing things. And it highlights the importance of investing regularly. But, naturally, I can accentuate long-term gains by buying when the market is down.

Why now?

As I write, the FTSE 100 is flat over the year. But that’s because the index has been hauled upwards by oil and resource stocks that have continued to surge this year. Instead, I’m looking at stocks trading at knockdown prices and there are plenty of them, including many blue-chip stocks. Here are three I’ve recently bought, or looking to buy.

Lloyds is is down 11% over the year and 25% over three years. Despite near-term challenges — loans turning bad as the UK enters recession — the medium-to-long-term outlook for this bank looks positive, especially if interest rates remain raised.

WH Smith is another company I’ve recently bought. The stock is down 14% over the year and 38% over three years. The retailer has struggled since the pandemic started as much of its sales take place at airports, train stations and other transport terminals. But as travel demand ramps up, WH Smith’s fortunes will improve.

Another discounted UK stock I’m looking at is Rolls-Royce. It’s down 36% over the past year and 63% over three years. Once again, Rolls struggled during the pandemic as civil aviation came to a halt. I’m confident this engineering giant will recover. And that’s why I’m buying now and holding Rolls for the long run.

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 assessed. Consider taking independent financial advice.

James Fox has positions in Lloyds Banking Group, Rolls-Royce and WH Smith. The Motley Fool UK has recommended Lloyds Banking Group. 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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