Aiming to make a million with UK shares is a common financial goal and has been for many years. Sadly, building a seven-figure portfolio from scratch doesn’t happen overnight — the process can often take decades.
For example, suppose an investor allocates £500 a month to their portfolio and matches the performance of the FTSE 100?
Assuming the lead index continues to deliver its average historical returns, reaching a million would theoretically take 34 years. And it may take even longer if the stock market decides to throw a poorly-timed tantrum.
Fortunately, this timeline can be shortened through prudent stock picking. Instead of mimicking the market, investors can carefully select individual high-quality businesses to pursue superior long-term returns.
Even if the annual gain is only boosted by an extra 3%, that’s enough to cut seven years from the waiting time!
With that in mind, here are three UK shares that could potentially put investors on the path to higher long-term returns.
The rise of digital marketing
dotDigital (LSE:DOTD) is one of many UK shares to have received enormous love during the pandemic. With e-commerce taking off like a rocket, the digital marketing platform saw a massive uptick in demand.
Since then, the share price has been solidly slashed. This isn’t entirely surprising. Given the far weaker economic conditions, the firm’s growth has tumbled from high double-digits to single-digit territory.
And yet, management continues to increase the average revenue per customer. It currently stands at £1,573 per month versus £1,083 in 2020. Recurring revenues now represent 95% of the top-line income, the balance sheet looks robust, and the group’s international expansion is starting to make significant strides.
In other words, dotDigital looks perfectly positioned to thrive once economic conditions improve. Even more so now that it’s introduced AI-powered campaign creation to its platform.
But the company is certainly not without its risks. Digital marketing is a highly competitive arena, with far larger companies to fend off.
If the worst-case scenario occurs and the UK falls into a recession, growth will likely slow even further. However, with this situation seeming less and less likely, along with a fairly reasonable valuation, dotDigital could be one of many UK shares primed for a comeback.
The new era of finance
A common challenge for international corporations is the risks introduced by fluctuating foreign exchange rates. And while traditionally these were hedged with the help of corporate banks, fintech firms like Alpha Group International (LSE:ALPH) and Argentex (LSE:AGFX) are rapidly becoming popular alternatives.
The firms are a little different. But they’re both involved in low-cost currency hedging as well as alternative banking solutions.
Neither business is struggling to find customers, especially among small- and medium-sized businesses that continue to be underserved by traditional financial institutions. As a result, the average compounded revenue growth rate over the last five years has been a spectacular 33.2% and 21.1% respectively.
Much like digital marketing, fintech is filled with competing solutions. Even some of the services these two firms provide are starting to overlap, introducing additional rivalry.
Moreover, fintech companies are having to navigate the labyrinth of regulatory compliance, and any breach could introduce severe legal and reputational backlash.
Nevertheless, this continues to be an exciting growth story in an industry ripe for disruption.
