With the State Pension age continuing to rise, investing in UK shares on a regular basis could significantly improve your long-term financial prospects.
The growth outlook for the stock market continues to be relatively positive despite the recent stock market crash. Many FTSE 100 and FTSE 250 shares with improving outlooks trade at low prices that could rise over the long run.
Therefore, now could be the right time to invest £100 per week, or any other amount, in a diverse range of British stocks. Over time, they could improve your retirement prospects and even lead to an ISA valued at £1m.
Starting to buy UK shares early
The earlier you can start buying UK shares, the more time they will have to produce compound returns. For example, the FTSE 100 has returned around 8% per annum on a total return basis over recent decades. An 8% annual return in itself may not sound all that impressive. However, when it’s achieved every year for a prolonged period of time, it can add up to surprisingly large returns.
For example, £100 per week invested in the FTSE 100 at 8% over a 10-year time period could end up being worth around £80,000. While that represents a significant sum of money, the same investment at the same rate of return could be worth as much as £1m over a 35-year time period. As such, the earlier you can start planning for retirement, the more chance there is of obtaining a large portfolio.
Buying cheap stocks
As well as providing your portfolio of UK shares with a long period of time to grow, purchasing cheap stocks may improve your prospects of generating a large nest egg. A key reason for this is that the stock market has always posted strong gains in the years following its declines.
For example, it surged to new record highs after downturns such as the dot com bubble and the global financial crisis. A similar outcome seems likely after the recent market crash.
Therefore, now could be the right time to start building a diverse ISA portfolio of British stocks. Many high-quality companies are currently trading at prices that are significantly below their historic averages. This may mean they can deliver high returns that allow you to outperform the wider stock market.
As a result, you may be able to build a £1m portfolio in a shorter amount of time than the 35 years given in the previous example.
Of course, UK shares are likely to experience periods of uncertainty and high volatility in the short run. For example, Brexit and the US election could cause investor sentiment to change in the coming months.
However, by taking a long-term view and maintaining your regular investment, you can enjoy financial freedom in older age via your generous ISA nest egg.
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.