Investing £100 per week in a Stocks and Shares ISA may not seem to be a sufficient amount to make a real impact on an investor’s retirement plans.
However, the past performance of UK shares means regular investments can add up to a sizeable portfolio value over the long run.
As such, with many FTSE 100 and FTSE 250 shares trading at low levels after the stock market crash, now could be an opportune moment to invest in high-quality companies at cheap prices for the long run.
Investing in attractive businesses at low prices in an ISA
While many UK shares have rebounded following the stock market crash, others offer capital growth opportunities for ISA investors. Some sectors remain unpopular among investors due in part to their weak near-term outlooks. Although this may mean their financial prospects are disappointing in the short run, over the long run they could deliver impressive capital returns.
As such, identifying cheap stocks that warrant a higher valuation could be a logical approach to investing regularly in UK shares at the present time. Some FTSE 100 and FTSE 250 companies deserve to trade at higher share prices. These may include those businesses with low debt levels and a large proportion of variable costs. They could weather further economic challenges better than their peers. Similarly, companies with wide economic moats, perhaps in the form of unique products or brand loyalty, may provide greater scope for capital gains in an ISA.
Building a retirement portfolio with UK shares
Clearly, UK shares face short-term risks in many cases. Therefore, having a diverse ISA that contains many companies in multiple sectors could help to reduce risks. It may also allow an investor to benefit from growth opportunities in a wider range of industries. The future is highly uncertain at the present time. So it may be useful to have exposure to more than just a small number of industries in the coming years.
Even if an investor is only able to match the returns of the stock market, they could retire on a surprisingly large ISA portfolio by investing modest amounts regularly. For example, the FTSE 100 has delivered an 8% per annum total return since it was formed in 1984. Assuming the same rate of return on a £100 weekly investment over a working lifetime of 40 years could produce a portfolio valued at over £1.5m.
Clearly, not all investors will have 40 years left until retirement for their ISA to grow. Look to buying a diverse range of today’s high-quality companies at low prices. By doing so, it’s possible to generate market-beating returns over the long run. And that means an investor may be able to generate a higher rate of growth than the FTSE 100 to improve their financial outlook.
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.