Making a 200% return, or trebling an initial investment, from UK shares may seem very unlikely at first glance. After all, the FTSE 100 hasn’t yet recovered from the 2020 stock market crash to post new record highs.
However, the past performance of the index shows that generating such returns may be far more realistic than many investors realise. Many UK stocks currently trade at low prices due to ongoing disruption caused by coronavirus. That means there may be opportunities to outperform past returns in the new bull market.
The past performance of UK shares
The track record of UK shares shows they’ve been a sound means of generating 200% returns. For example, the FTSE 100 has posted annualised total returns of around 9% since it was established in 1984. As such, an investment that grows at the same pace as the wider index could double within eight years. And even treble within a further four years. This means an investment made today that matches the stock market’s performance may be trading 200% higher within 12 years.
Of course, there’s no guarantee the stock market will produce 9% annualised total returns in future. It’s experienced periods of huge disappointment that have caused its price level to halve in a matter of months. However, the key takeaway is that high single-digit returns are available from equity markets over the long term.
An investor who buys and holds a diverse portfolio of UK shares for the long run could benefit from compounding, and may be able to treble their initial investment.
Buying opportunities from across the FTSE 100
While a diverse portfolio of UK shares could deliver high returns, it’s possible to outperform the FTSE 100 over the long run. Doing so would reduce the amount of time it takes for an investment to treble in value. And that may lead to a larger nest egg providing greater financial freedom in future.
At the present time, many UK stocks trade on valuations that appear to underestimate their potential to deliver improving financial performances in the coming years. Certainly, their short-term operating conditions are tough in many cases. Industries such as retail, banking and a number of others are suffering from a weak UK economic outlook for the first part of 2021.
However, history suggests that UK shares with solid financial positions operating in such sectors can survive the short run challenges they face to benefit from improving outlooks in the coming years. They may be able to deliver rising profitability that has a positive impact on investor sentiment, as well as their share prices.
Buying them when they trade at low prices may provide scope for higher capital returns. And that increases an investor’s potential to treble their initial investment as the current bull market continues.
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.