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£1K to invest? I’d buy Lloyds shares to retire on

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If you have £1,000 or any other amount to invest in the stock market for the long term, it might be worth taking a closer look at Lloyds (LSE: LLOY) shares. 

Lloyds shares on offer

Buying Lloyds shares after the recent stock market crash may not sound all that appealing to many investors. After all, the outlook for the UK economy is highly uncertain in the short run. 

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However, over the long run, the lender may experience a strong comeback. 

As the UK’s largest mortgage lender, Lloyds is one of the most important financial institutions in the UK. What’s more, the bank’s fortunes are tied to those of the UK economy. 

If the economy does well, Lloyds’ earnings should rise, which should help push the lender’s share price higher. On the other hand, if the economy falls into a recession, profits could fall substantially over the next few months. 

Lloyds has already declared that it will see substantial losses in its portfolio of loans this year. Nevertheless, despite these issues, the bank remains well capitalised and is unlikely to suffer any significant financial distress, as it did in the crisis of 2008.

At this point, there’s no reason to suggest that Lloyds won’t survive the current crisis. It could even emerge stronger. In times of economic stress, customers tend to flock to larger banks, which are usually more stable than smaller peers.

This could mean that Lloyds sees a significant influx of customers in the short term. These new customers are unlikely to have a big impact on profits immediately, but they should help the bank in the long run. 

Uncertainty

Of course, there’s still a lot we don’t know about the coronavirus, and a possible second wave could have an even more significant dampening effect on the UK economy. But Lloyds seems to be coping well in the current environment. This suggests that the market reaction to the lender’s outlook has been overdone. 

Lloyds’ shares are down around 50% since the beginning of the year. In addition, the stock is dealing at a price-to-book (P/B) ratio of just 0.4. That’s compared to the financial services sector average of 0.5. Usually, when a company is trading at such a deep discount to the rest of the sector, it is a strong indication that this stock offers a wide margin of safety. 

As such, buying Lloyds shares today and holding them over the long run as part of a diverse portfolio of shares could dramatically improve your retirement prospects.

While it is unlikely the stock will outperform in the near term as the outlook for the UK economy remains uncertain, Lloyds’ position in the market should help it build a positive recovery over the next five or 10 years. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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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