Investing during a recession? I’d buy UK shares to make a million

Recession is looming! Investing might look scary. But Anna Sokolidou explains why buying UK shares looks like a smart move.

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.

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.

Investing during a recession might look scary but it’s often a prudent strategy. I’ll explain how you could make a million by buying UK shares during a recession.

Recession is looming

The unemployment rate in the UK has increased in the three months to July. This is despite the fact that many restrictions have been lifted. So, even if the Covid-19 pandemic were finally over, it looks like the macroeconomic consequences will be long lasting. But will the pandemic end tomorrow? I don’t think so. The World Health Organisation has just reported a record one-day rise in coronavirus cases. This might force governments all over the world to take additional measures to fight the spread of the virus. 

But, unfortunately, the coronavirus isn’t the only challenge we are facing. Brexit is around the corner too. The big question now is if it will be a ‘deal’ or a ‘no-deal’ one. If it’s the latter, then, I am afraid there’ll be another market crash. What’s more, ‘hard’ Brexit will probably make the recession last longer.  

UK investors should also consider international challenges. Among them are US-China trade relations and the upcoming presidential elections in the US. All these factors create plenty of uncertainty. That’s because most Footsie shares are issued by international companies. Think of BP, Unilever, and Diageo, for example. They all depend on currency fluctuations and international demand.

All that sounds grim but it doesn’t mean we shouldn’t invest. But the question is how.

Investing in UK shares 

My colleagues have written about pound-cost averaging. It means investing a small fixed amount of money regularly, say, once per month. It’s a good investment approach. However, there is another quicker path to making a million, I think. It involves buying more UK shares during recessions or straight after a market crash. But when the stock market is near all-time highs, it’s much better to set aside some cash and wait for prices to plunge. After the crash it would be the best to stockpile ‘good’ UK shares.

What do I mean by this? Well, to start with, companies issuing such shares must be quite large. They should also have long operational histories. Of course, they should also have high credit ratings. This reflects financial soundness, including healthy balance sheets and cash flow positions.

What’s more, good companies should have an economic moat. It’s one of Warren Buffett’s most important criteria. It simply means a strong competitive advantage. For example, it could be a strong brand image. But economies of scale are also important because they mean lower prices for customers.

Then, I’d also prefer investing in undervalued companies. This means they have to have low price-to-earnings (P/E) and price-to-book (P/B) ratios.

Finally, ‘great’ companies should also pay dividends. These dividends can be reinvested. So, you could be growing your portfolio at a much quicker pace. It’s called the power of compounding. Hopefully, if you adopt this investment strategy, you should end up with a million or more over time.

Companies with all the features mentioned above are sometimes hard to find. But The Motley Fool catalogues can be of great help here.     

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.

Anna Sokolidou has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Unilever. 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

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »