Buying cheap UK shares after the stock market crash could be a sound means of obtaining a generous passive income in retirement.
The stock market has a long track record of delivering growth following its declines. As such, now could be the right time to build a diverse ISA portfolio while many FTSE 100 and FTSE 250 shares currently offer low valuations.
Over time, they could make a positive impact on your retirement prospects – even from a standing start at age 40.
Buying cheap UK shares to make a passive income
Buying cheap UK shares to make a passive income in retirement may seem to be a relatively risky strategy following the stock market crash. After all, risks such as Brexit and coronavirus could weigh on the performances of indexes such as the FTSE 100 and FTSE 250.
However, over the long run, a portfolio of British shares could outperform other assets and produce a relatively large nest egg. The stock market has an excellent track record of recovering from its downturns to post new record highs. For anyone aged 40, or who has a long time horizon until they retire, there’s likely to be ample time for the stock market to recover from any future downturn to provide a passive income in older age.
By contrast, the returns available from assets such as cash and bonds may mean they fail to provide a portfolio big enough from which to draw a passive income in retirement. Low interest rates mean the returns from cash and bonds may fail to match inflation. Meanwhile, the high prices of other assets such as gold and buy-to-let property means that cheap UK shares may offer the best means of obtaining high returns in the coming years.
Simple steps to create an ISA portfolio
Investing in cheap UK shares to make a passive income in retirement may seem like a daunting step for anyone to take. However, it’s relatively simple and straightforward to capitalise on the stock market’s long-term growth rate. Online accounts such as an ISA can be opened in a matter of minutes. Their costs are often very low, which makes them accessible to a wide range of investors. Their charges are also likely to be easily outweighed by their tax benefits.
Of course, the stock market can be relatively volatile at times. Therefore, it’s prudent to diversify across a wide range of companies within one’s ISA so that one’s not reliant on a small number of businesses for returns and eventual passive income. Furthermore, investing money in businesses with solid financial positions and sound growth strategies may enhance one’s return prospects. This may make the task of generating an income in retirement easier, and may even help to bring forward one’s retirement date.
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.