No Savings at 45? I’d start drip-feeding £500 a month into UK shares to build wealth

Nothing in the bank for retirement? Zaven Boyrazian explains how investing in UK shares could be the key to building a sizable nest egg from scratch.

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It’s never too late to start using UK shares to try and get richer. The stock market continues to be one of the best methods for building wealth today. And even investing small sums each month can transform into a substantial portfolio in the long run.

Since their inception, the FTSE 100 and FTSE 250 have delivered average annualised returns of 8% and 11%, respectively. A 45-year-old starting from scratch investing £500 a month at these rates could end up with a bulky retirement fund. In fact, by starting now, they could achieve anywhere between £325,180 and £489,220 by the time they reach the current State Pension age of 66.

Having up to an extra half million in the bank certainly makes for a more comfortable retirement lifestyle. And with uncertainty surrounding how much the state will provide two decades from now, it’s essential for individuals to safeguard their financial futures.

Investing despite the gloomy environment

For many, investing in the stock market today may sound like a crazy idea. After all, the ongoing correction has sent many British shares in the wrong direction. Elevated inflation and rising interest rates have created an adverse operating environment for most businesses. This is especially true for firms that have lots of debt.

However, not all companies are necessarily in trouble. While achieving growth may be tough in the current climate, economic conditions could start improving. And the latest sets of earnings, especially in the e-commerce and technology sector, are showing early signs that the worst might be over.

If this is the case, then buying well-capitalised, high-quality shares while they still trade at discounted valuations could unlock substantial wealth in the coming years. For prudent investors, it may even lead to market-beating returns that could push a pension pot even higher than £500,000.

Managing risk and expectations

As alluring as the prospect of having a six-figure portfolio to rely on during retirement, there are some notable caveats to consider. First and foremost, nothing is guaranteed.

Investors have recently been reminded that stocks don’t always go up. Corrections and crashes are a natural and largely unavoidable part of an investing journey. And depending on the timing of these events, a portfolio may be worth considerably less than expected.

Twenty years is more than enough time for another economic wobble to materialise, sending portfolios plummeting once more. While this does create another round of lucrative buying opportunities, retirement may have to be delayed.

Fortunately, investors aren’t powerless in these situations. Having a decent chunk of cash in a high-interest savings account can help keep up with the bills and perhaps even serve as capital to snap up more cheap shares in the future. Furthermore, by ensuring a portfolio is well diversified across multiple top-notch stocks in different industries and geographies, the impact of sudden downturns can be partly mitigated.

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.

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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