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I’d invest £200 a month in cheap UK shares in a Stocks and Shares ISA to retire early

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The stock market crash has left a wide range of cheap UK shares available to buy today. Certainly, they could experience challenges in the short run. They may even decline further in price over the coming months. However, over the long run, many of them appear to have the potential to deliver sound recoveries. This means they could make a positive impact on an investor’s retirement prospects.

A simple means of capitalising on their low prices is to buy stocks regularly through a Stocks and Shares ISA. Over time, it could lead to a generous nest egg that could help an investor like me to bring forward their retirement date.

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Investing in cheap UK shares

Cheap UK shares could offer excellent long-term returns. In many cases, they are currently priced at low levels because they face difficult operating conditions. For example, banks are facing a tough outlook due to economic weakness, while travel & leisure stocks have weak financial prospects as a result of coronavirus restrictions.

However, such conditions are unlikely to last forever. The track record of the economy shows that it has always returned to positive growth after periods of decline. This means that companies that can survive short-term challenges may be in a strong position to prosper over the long run. They may even be able to improve their market position at the expense of weaker peers.

As such, investing in cheap UK shares that have the financial strength and competitive advantage to overcome short-term risks could be a profitable long-term move. Today’s undervalued companies could be among the biggest beneficiaries of a likely return to economic growth and a rising stock market.

Regular investment through a Stocks and Shares ISA

Of course, some investors may not have capital available today to buy cheap UK shares. But regular investing could prove to be a logical option that leads to a surprisingly large portfolio over the long run.

For example, the FTSE 100 has delivered a total return of around 8% per annum since its inception in 1984. Assuming the same return over a 30-year period on a monthly investment of £200 would produce a portfolio valued at around £300,000. From that, a 4% annual withdrawal would mean an income of £12,000. This could act as a useful supplement to the State Pension.

Buying cheap UK shares through a Stocks and Shares ISA could provide relatively high net returns. No tax is levied on amounts invested through an ISA. Over time, this could lead to significant savings versus a bog-standard share-dealing account. An ISA provides a significant amount of flexibility, in terms of withdrawals being possible prior to retirement without penalty. It could prove to be a sound means of capitalising on today’s low share prices ahead of a potential long-term recovery.

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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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