The performance of UK shares over the last year has been very mixed. Some stocks have benefitted from the changing consumer spending patterns caused by coronavirus. However, many others have suffered greatly from disruption and an economic slowdown.
This is reflected in the performance of the stock market. The FTSE 100 continues to trade around 10% lower than a year ago. However, its performance over the long run has been very impressive.
Therefore, investing money in a diverse range of shares that offer good value for money could be a sound move for success. It may allow an initial investment of £5,000, or any other amount, to double in value.
Doubling an investment via UK shares
The idea of doubling an investment in UK shares may sound impossible to some investors. While that may be the case over a short time period, over the long run the impact of compounding can make a really big difference to the value of an investor’s portfolio.
For example, the FTSE 100 has recorded annualised total returns of around 8% since its inception in 1984. Certainly, since then it has experienced a number of bear markets and downturns that have dampened its performance. However, it has always recovered from them to make new record highs.
Assuming the same return in future from UK shares would mean an initial investment of £5,000, or any other amount, would double within nine years. Therefore, it’s possible for any investor to track the index through having a diverse portfolio of shares and make 100% returns.
Buying high-quality growth shares at cheap prices
However, it’s possible to earn much higher returns than the stock market through identifying growth stocks that trade at low prices. They may be able to grow their earnings at a fast pace, perhaps due to a unique product. Or even by a strategy that adapts more easily to changing operating conditions. This could produce a higher market valuation. Moreover, buying them while they trade at cheap prices could provide greater scope for capital growth.
With many UK shares currently trading at low prices, it’s possible to buy cheap shares at the present time. Furthermore, some sectors may have stronger growth potential than their valuations suggest. For example, healthcare companies could benefit from global demographic trends. Meanwhile, a shift towards the digital economy may put some companies in vastly stronger positions compared to their competitors.
Through buying a diverse range of stocks that have long-term growth potential while they trade at low prices, it’s possible to earn a higher return than the wider stock market. Over the coming years, this could lead to a shorter amount of time being required to double an initial investment compared to tracking an index such as the FTSE 100.
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.