How buying cheap UK shares in August could turn an empty ISA into £535,823!

Buying cheap shares like this FTSE 100 superstar could help me make half a million pounds by 2044. Here’s why it could be a standout performer.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Now’s a great time to go shopping for quality UK stocks at knockdown prices. Years of underperformance mean that both the FTSE 100 and FTSE 250 indices are packed with great, cheap shares.

With a tax-efficient Stocks and Shares ISA, I can invest up to £20,000 a year in equities, funds and other financial instruments. It can allow me to save a fortune in tax payments over time.

As I’ll show here, one of these products could help me eventually go from having zero wealth to a huge lump sum above £535,000 in just a couple of decades.

Should you invest £1,000 in Nvidia right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nvidia made the list?

See the 6 stocks

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Splitting my investment

As I say, buying stocks this August is an attractive idea, given their current cheapness. But I wouldn’t just invest all of my money in equities today. I’d look to put my capital in higher-risk assets like stocks alongside low-risk ones such as savings accounts.

This helps to spread my risk and provide a smooth return over the entire economic cycle. Fortunately, I can hit both of these goals with the ISA range of products.

As its name suggests, the Cash ISA acts like a bog-standard savings account, but with the added bonus of tax efficiency. The Stocks and Shares ISA, meanwhile, lets me target a higher return with riskier products.

How much I put in each ISA would depend on my own investment goals and attitude to risk. There’s no set formula, but one strategy could be to invest 80% in shares and 20% in cash each year.

High returns

With this established, I’d then need to choose which stocks to buy. My priority would be to select cheap shares, as these can boost my chances of making above-average returns.

The idea is that value stocks often deliver market-beating capital appreciation when the market eventually wises up to their cheapness.

My next step would be to buy a mix of FTSE 100 and FTSE 250 shares. The average long-term return for these indices stands at 9.3%. It’s the sort of figure that could turn my ISA from £0 into more than £500k in a couple of decades.

With me getting a 5% interest rate on my Cash ISA, a £10,000 annual investment spread 80% in cheap stocks like this, and 20% in cash savings could, after 20 years, turn into £535,823.

ISAMonthly investmentGrowth rateTotal
Stocks and Shares ISA£666.679.3%£466,864.14
Cash ISA£166.675%£68,959.10

One FTSE 100 bargain

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Phoenix Group Holdings (LSE:PHNX) is one such company I feel is massively undervalued right now.

City analysts expect annual earnings here to soar 43% in 2024. This leaves the Footsie firm trading on a price-to-earnings growth (PEG) ratio of 0.4. A reminder that any reading below 1 indicates that a share is undervalued.

On top of this, Phoenix Group shares currently carry a huge 9.9% forward dividend yield.

This is a company with considerable long-term potential. On one hand, the financial services sector’s hugely competitive, meaning Phoenix has to paddle extremely hard to succeed. A sustained property market downturn could also harm the firm’s mortgage book.

But its excellent brand power and cash-rich balance sheet makes it a formidable player in its own right. And with demographic changes driving demand for savings and retirement products, it has an excellent chance to increase revenues in the coming decades.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Nvidia right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nvidia made the list?

See the 6 stocks

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.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »