Investing regularly in cheap UK shares could be a simple, but effective, means of making a million. The track record of indexes such as the FTSE 100 shows that even though bear markets and crashes occur from time-to-time, over the long run the stock market offers excellent return potential.
As such, starting to invest in a diverse range of stocks today could be a sound move. It could turn a £500 monthly investment into a seven-figure portfolio quicker than many investors realise.
The track record of UK shares
The recent market crash has naturally ‘shortened’ the focus of many investors in UK shares. While they previously were considering how their portfolios could grow over the long run, many investors may now be concerned about the stock market’s performance in the short run.
However, even if a second market crash occurs, the track record of the stock market shows that a long-term recovery is very likely. After all, indexes such as the FTSE 100 have experienced numerous bear markets and downturns during their history. Yet they have been able to return around 8% on a total return basis per year. This suggests that buying stocks and holding them for many years is a sound means of generating high returns.
The short-term price movements of UK shares should be of even less concern for regular investors. In fact, if you buy shares regularly, market declines are likely to be a good thing. The stock market has always recovered from its falls to post new record highs. This means that buying at lower price levels is likely to be beneficial to your chances of making a million.
Furthermore, investing regularly means investors avoid trying to time the market. This can be an exceptionally difficult task that is largely dependent on luck, since many bear market catalysts can be difficult to foresee prior to them occurring. Therefore, simply buying shares regularly is a worthwhile means of capitalising on the stock market’s long-term growth prospects.
Buying cheap stocks to make a million
Of course, buying cheap UK shares could be a means of generating even higher returns than the wider stock market. They offer wider margins of safety, which can translate into higher capital returns. This may allow you to outperform indexes such as the FTSE 100.
However, even assuming that your £500 monthly investment achieves only the same rate of return as the FTSE 100 has done since its inception, you could obtain a £1m portfolio within 35 years. Clearly, this is no overnight success story, but it does show that making a million from the stock market is a realistic goal for any investor with sufficient time and capital. And through buying UK shares regularly at low price levels, you could speed-up the process so that a seven-figure portfolio is achieved even quicker.
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.