Here’s how investing in UK stocks could help me retire rich as inflation soars

Buying UK stocks can be a top investing tactic during times of high inflation like these. And this research carried out by IG Group shows why.

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I don’t know about you. But I’m becoming increasingly pessimistic about the State Pension and whether it will give me the retirement I’m hoping for. So I’m planning to set aside more cash to invest in UK stocks.

National debt has risen to alarming levels and is tipped to keep increasing. At the same time, Britain’s older population continues rapidly growing. This means that any future government will likely struggle to pay its elderly citizens a decent pension.

I’m not alone in worrying about this. A survey from People’s Partnership shows that nearly half of working adults in the UK expect to continue working after they’ve reached State Pension age.

Shocking survey

The organisation — which runs the People’s Pension workplace pension scheme — says that 46% of working adults expect to still be in employment after they become eligible for the state benefit.

Even more alarmingly, 7% of the 2,000 people surveyed believed they won’t be able to retire at all.

Less than a quarter (24%) were confident of having sufficient pension savings for them to enjoy the lifestyle they were hoping for in retirement, People’s Partnership said. And almost 40% said they felt less confident about their retirement prospects than they did before the Covid-19 pandemic struck in 2020.

Investing in inflationary periods

The problem is that putting money aside to help fund retirement is tougher than normal right now as the cost-of-living crisis endures.

But tighter budgets means it’s even more important to make your money work as hard as it can. This is where investing in UK shares can be a better option for individuals who are happy to accept a little more risk.

The benefit of investing in British stocks is especially high in periods of strong inflation like today. IG Group notes that “over the last 119 years, UK stocks have made annualised returns of 4.9% over and above inflation”.

To put that in context, an investor who believes inflation will remain around 5% over a prolonged period can expect to make an average long-term return just shy of 10%.

UK stocks vs cash accounts

This sort of return can provide individuals with a significant cash boost for retirement. Even a modest monthly investment in London-listed stocks can help them build up a healthy nest egg.

Let’s say that someone can afford to invest £250 a month in UK shares. After 30 years they could, based on that near-10% rate of return, have made a terrific £484,234.

Now compare that with what someone could expect to make with a bog-standard savings account.

Let’s say they put that £250 into the best-paying instant-access savings account (the 3.91% product from Paragon Bank). And let us assume that the rate it offers remains the same for the long term. That person would have made £165,747 over the same timeframe, less than half what they could have made with UK shares.

Times are tougher than normal right now. But I plan to continue investing any extra cash I have in the London stock market.

In fact this could be an excellent time to go shopping for stocks. Recent market volatility leaves many top-quality companies trading at rock-bottom prices.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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