Investing modest sums of money in cheap UK shares on a regular basis could lead to a surprisingly large ISA return over the long run. The stock market’s low valuation and recovery potential mean it could provide a wide range of investors with a nest egg from which to enjoy financial freedom in older age.
Therefore, instead of trying to win the National Lottery, now may be the right time to start investing in British stocks. They could make a far more positive impact on your financial outlook.
Investing regularly in cheap UK shares
Many investors may be dissuaded from buying cheap UK shares because they only have modest amounts of spare cash. While this may have been a problem many years ago due to the cost of buying stocks, today the stock market is accessible to a wide range of people.
For example, many online sharedealing providers offer regular investing services. This is where you invest on a monthly basis for a relatively small fee, which can be as little as £1.50 per trade in some cases. As such, it’s possible to invest small amounts often to take advantage of the stock market’s growth potential.
Buying cheap UK shares could lead to high returns in the long run. Although the National Lottery may make you a millionaire in an instant, the chances of you winning are slim. In fact, the odds of winning the jackpot are around one in 45m.
By contrast, indexes such as the FTSE 100 and FTSE 250 have solid track records of delivering high single-digit annual growth. For example, the FTSE 100 has returned around 8% per annum since its inception in 1984. Assuming the same rate of return on a twice-weekly National Lottery ticket costing £2, you could build an ISA portfolio worth over £60,000 in a working lifetime of 40 years.
While that may not be sufficient to sustain you in retirement, it shows that even modest investments can really add up over the years.
Investing in a Stocks and Shares ISA today
Buying cheap UK shares through a Stocks and Shares ISA is a tax-efficient means of taking advantage of the stock market’s growth potential. No tax is levied on amounts invested through an ISA, which could further enhance your portfolio’s performance compared to using a bog-standard sharedealing account.
While some investors may have a cautious standpoint due to the recent 2020 stock market crash, now could be the right time to start investing. Many British stocks are trading at low prices due to risks such as Brexit and the coronavirus pandemic.
Buying them now could lead to market-beating returns in the long run as the stock market recovers. This may further improve your financial prospects over the long run.
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.