You do not need to have large sums of money available to capitalise on the long-term growth prospects of UK shares. In fact, investing £100 per week could lead to a surprisingly large nest egg that enables you to retire earlier than expected.
Through investing money in a Stocks and Shares ISA after the recent stock market crash, you could capitalise on cheap stocks that may deliver market-beating returns in the coming years.
The growth potential of UK shares
The recent stock market crash may have caused some investors to view UK shares in a negative light. After all, the FTSE 100 is still down around 20% since the start of the year, while many of its members are trading at even bigger losses.
However, the long-term growth potential of the stock market is relatively high. At a time when cash and bonds offer extremely disappointing returns and buy-to-let property is out of reach for many investors, building a diverse portfolio of stocks is likely to be a sound means of generating high returns. That’s especially the case for investors who do not have large sums of capital.
For example, UK shares have generally offered high-single-digit annual returns over recent decades. Assuming such a rate of return on a £100 monthly investment over a 40-year working lifetime could lead to a portfolio valued at £350,000. From that, a 4% annual passive income would equate to around £14,000. That’s more than 50% higher than the State Pension, which could mean you enjoy greater financial freedom in older age.
Investing money in British stocks today
Investing money in UK shares is now easier than ever. Various share-dealing providers offer regular investing services so that you can buy £100 worth of stocks on a monthly basis at commission rates that are as low as £1.50 per trade.
Of course, diversifying across a wide range of companies is imperative for all investors. For smaller investors who are starting out, tracker funds that mimic the performance of an index such as the FTSE 100 may be a sound move. They offer exposure to a wide range of businesses, which could reduce your overall risks. It may also mean that you enjoy greater returns over the coming years, as some sectors outperform others following the recent economic downturn.
Buying UK shares in a Stocks and Shares ISA could be another worthwhile move. No tax is payable on amounts invested through an ISA. This could improve your long-term return prospects, while penalty-free withdrawals may mean that you enjoy greater flexibility when it comes to budgeting for retirement. As such, now could be the right time to start buying stocks in an ISA for the long term. It has the potential to improve your prospects of retiring early.
The post Have £100 to invest each month? I’d buy UK shares in an ISA to get rich and retire early appeared first on The Motley Fool UK.
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.
Motley Fool UK 2020