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Have £500 a month to invest in an ISA? I’d buy UK shares to get rich and retire early

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Regularly investing money in UK shares could be a simple means of improving your retirement prospects. The stock market has historically delivered high single-digit annual gains. Over time, they could add up to produce a surprisingly large nest egg from which to generate a passive income.

With the low cost of buying shares through a Stocks and Shares ISA, and the tax benefits being high, now could be the right time to start investing for retirement. The stock market crash has pushed valuations lower, which could lead to more impressive returns in the long run.

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Regular investments in UK shares

Since many people don’t have a lump sum to invest in UK shares, regular investments are a practical means of benefitting from the stock market’s growth prospects. It has a strong track record relative to other mainstream assets.

Even taking into account the recent stock market crash, as well as many other bear markets over previous years, the FTSE 100 has risen from 1,000 points in 1984 to 6,000 points today. When dividends are included, that works out as an annualised return of around 8%.

Therefore, it could turn a monthly investment into a sizeable portfolio by the time you come to retirement. For example, a £500 monthly investment would amount to almost £300,000 over a 20-year time period. Over a 40-year time line, it would grow to around £1.75m. That shows investing even modest amounts for a long time period can really pay off.

Investing money in a Stocks and Shares ISA

Taking advantage of the growth rate of UK shares may be easier than many investors realise. Tax-efficient accounts, such as Stocks and Shares ISAs, can be opened online in a matter of minutes. They offer regular investment services designed for investors who wish to buy British stocks regularly. Lower commission rates are often available.

A Stocks and Shares ISA offers tax efficiency because no tax is levied on any amounts invested within it. There are also no taxes or penalties for withdrawing capital at any time. That’s a key differentiator compared to other accounts such as a SIPP. Therefore, it provides a large amount of flexibility. And it even allows investors to retire well before the State Pension should they wish to do so.

Retiring early

Clearly, the near-term prospects for UK shares are very uncertain. There may even be a second stock market crash. By investing regularly in a diverse range of British stocks, you can benefit from their lower prices during such periods.

This may lead to even higher returns in the long run. And that could make an even more positive impact on your portfolio’s performance. This may produce a larger nest egg and an earlier retirement date than you had previously thought possible.

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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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