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£5,000 to invest? Here’s how I’d find the best UK shares to aim for a 100% return

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

The best UK shares for a long-term investor to buy may not necessarily be the companies with the strongest balance sheet, largest growth potential, or lowest share price. Instead, it’s the businesses that encompass all three of these traits at the same time.

A terrific business can be a bad investment if the wrong price is paid. In other words, long-term investing success depends on getting good value for money. And deploying this strategy in the stock market’s small-cap sector may open the door to some impressive returns.

With that in mind, here’s how investors could aim to generate a 100% return on investment, with £5,000, or any amount for that matter.

Buying UK shares to profit from the volatility

The stock market hasn’t had a great run this year. The impact of inflation and rising interest rates is putting a lot of investors on edge. And small-cap stocks have arguably felt it the most. After all, since the start of 2022, the FTSE AIM All-Share index has tumbled more than 32%!

But volatility often breeds opportunity for patient investors. While there’s no denying the current macroeconomic conditions have a tangible adverse impact, not every small company is doomed to fail.

Businesses with strong balance sheets and prudent leadership with an uncompromised long-term strategy offer investors lucrative turnaround opportunities today. And the significant drop in share prices this year, especially in the small-cap space, now means most of these UK shares are likely trading at bargain valuations.

Generating a 100% return in the long run

Not every turnaround investment will be successful, of course. Unpredictable external factors can always emerge and throw a spanner in the works. And that certainly was the case for the best travel stocks in 2020 when Covid-19 decided to pop up.

That’s why diversification, especially during a volatile market, remains paramount. After all, this risk-reduction strategy mitigates the impact of underachieving investments. And history has shown that a diverse portfolio of cheap UK shares can realistically double in size in the long run.

In fact, even if an investor buys the best bargain small-cap stocks today and only muster the same 8% annualised return of the FTSE 100, that’s still enough to turn £5,000 into £10,000 within less than nine years.

Of course, as with anything in the investing world, there’s never any guarantee of success. The stock market has always recovered from crashes and corrections. But there’s no real way of knowing when the recovery will start, let alone how long the process will take.

Consequently, it may take longer than anticipated for investors to double their money. And that’s assuming they don’t accidentally end up destroying wealth rather than creating it. Like 2022 has abruptly reminded everyone, stock prices can go down as well as up.

Nevertheless, given the potential long-term rewards, investing in discounted top-notch UK shares today could be a sound financial decision.

The post £5,000 to invest? Here’s how I’d find the best UK shares to aim for a 100% return appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2022