No savings at 40? I’d buy cheap UK shares in an ISA to retire rich

Buying cheap UK shares could have a positive impact on your long-term financial prospects, in my view. They may even help you to retire early.

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.

Today may not seem to be the right time to start investing in cheap UK shares. The weak economic outlook and risks such as Brexit could prompt a second stock market crash. This could lead to losses for stock market investors in the short run.

However, the risks currently facing investors could make now the perfect time to start investing for the long term. Many high-quality companies are currently trading at low prices that are likely to recover in the coming years.

Therefore, if you’ve no retirement savings, buying stocks today could improve your financial outlook. Doing so may even help you to retire early.

Cheap UK shares

Despite the stock market’s recovery since the 2020 crash, there are still a wide range of cheap UK shares available to buy. In some cases, they’re undervalued because they face uncertain operating conditions. However, in other cases, they’re cheap because investor sentiment towards the wider stock market is currently weak.

This may provide long-term investors with buying opportunities. In previous crises, buying undervalued stocks and holding them for a period of many years has proven to be a sound strategy. It’s allowed investors to take advantage of low prices likely to be positively impacted to a greater extent than overpriced stocks by a long-term economic recovery.

Certainly, buying cheap UK shares is unlikely to produce high returns in the short run. As mentioned, numerous risks could negatively impact on the stock market’s performance in the coming months. However, an investor aged 40, or someone who has a long-term horizon, is likely to have sufficient time to benefit from a likely economic recovery. And that would catalyse their portfolio’s performance.

Starting to invest for retirement

Cheap UK shares may prove to be a better means of saving for retirement than other mainstream assets. Low interest rates mean that cash and bonds offer relatively low rates of return. Meanwhile, high house prices and the large cost of a deposit may mean that buy-to-let property is unappealing, even as government support sends the market higher in the short run.

Even investing relatively modest amounts of money in a selection of British shares can produce a surprisingly large retirement nest egg. The stock market’s annual returns have been around 8% over recent decades. Assuming that rate of return, a £250 monthly investment would produce a portfolio valued at £240,000 over a 25-year time period.

Of course, buying cheap UK shares today could produce an even higher rate of return that has a greater impact on your portfolio’s valuation by retirement. Therefore, now could be just the right time to start buying stocks after the market crash. They appear to offer wide margins of safety that could improve your long-term financial outlook.

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.

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

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

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 »