Right now, I’d be keen to put to work a lump sum of £700. And I’d invest it in stocks and shares. There’s no question about that.
My view is the stock market is presenting investors with one of the most attractive sets of circumstances for years. We’ve just endured a bear market for many stocks. But I reckon it’s in its last gasps.
And the exciting thing to me is that bull markets tend to start quietly when everyone still has their eyes on the bear. Bulls don’t always gallop straight in snorting, bucking and causing havoc. Sometimes they just saunter into the kitchen when we’ve left the door open, barely noticed.
Strong trading from businesses
But the turns in the market can be messy. Some stocks continue to fall, some shoot higher and some just flatline. And to my reading of the situation, all that has been happening for the past few weeks. Indeed, there have been some excellent opportunities for careful stock pickers. But there have been some poor-performing shares as well.
Meanwhile, many businesses have been reporting robust trading and upbeat outlooks. And it’s easy to spot when such announcements surprise the market because stock prices jump higher in a catch-up move. It seems clear that the prior down-moves and valuation downgrades have been overdone in many cases.
But, as ever, that’s not a one-size-fits all conclusion. Sometimes share prices deserve to go lower because of poor performance in the underlying business. Nevertheless, with valuations purged of their worst excesses, the potential for a long period of great returns ahead from stocks has increased.
Regular investing
Therefore, I wouldn’t stop after investing £700. My aim would be to invest money regularly into a Stocks and Shares ISA. And I’d plan to put away as much as possible each month. Indeed, £700 a month would be ideal. And that’s because over a working lifetime on an average salary I’d have a good chance of creating a million-pound portfolio.
The long-term compounded annual gains from the stock market are often quoted as historically being in the order of 7%, or so. Although America’s S&P 500 index has done better at 10.5%. But if I could achieve 7% it would take around 32 years to get to a million while investing £700 each month.
But past performance is no guarantee the market will go on to deliver similar returns. It could be lower. Equally, it could be higher. And there are risks, of course. All businesses can run into operational challenges from time to time. And its possible to lose money on shares, especially if I choose the wrong ones.
Nevertheless, I’d embrace the risks and position myself to benefit from the positive potential of stocks and shares. And my strategy for stocks would be to invest in a mix of trackers, managed funds and individual companies. If I hadn’t started already, I’d make 2023 the year I took my first steps aiming to build a million-pound stocks and shares ISA.
