Investing in the stock market is one of the easiest ways to build wealth over the long term. In my opinion, one of the best strategies to follow to build wealth quickly is to buy stocks when they look cheap. My research shows that many UK shares currently fit into this bracket.
As such, I would invest in these companies today to grow my wealth.
UK shares with growth potential
There are two ways to buy cheap stocks. One can either acquire stocks when they are trading at low levels after having fallen on hard times, or buy growth stocks before they start to take off.
I think using both of these methods could be the best overall strategy. Research shows that buying stocks when they are trading at low levels, which is effectively value investing, can generate steady positive returns in the long term. However, purchasing growth stocks before they take off can yield significantly higher returns in a shorter period of time, although it is hard to discover these businesses.
By acquiring UK shares that fit into both the value and growth buckets, I believe I can achieve the best of both worlds.
There is a range of companies on the market that I would buy as growth investments. The most prominent of these, to me, is the online retailer Boohoo. This has been one of the market’s best-performing growth stocks of the past decade. Another option is computer games developer Frontier Developments. This is just one option in the rapidly growing sector of online gaming.
Elsewhere, media company Future and retailer JD Sports Fashion have proved that they have cracked the growth code. I think these are some of the best growth businesses on the market, and I believe a diversified portfolio of these stocks could yield high total returns in the years ahead.
Value UK shares
On the other hand, I’m also eyeing up value investments such as the financial services giant Barclays and Just. According to my calculations, shares in these companies are trading at a discount of around 50% to their fundamental asset value. Some other examples are the mining and commodity conglomerate Glencore and airline IAG.
There are plenty of other UK shares that look cheap in the market’s small-cap section. However, I would steer away from these businesses because they are challenging to analyse, and there’s a lot that can go wrong with small companies.
For example, IAG has been able to raise billions of pounds from its investors over the past 12 months to remain solvent. Most small-cap companies cannot raise money that quickly, which means they tend to have a higher failure rate than their blue-chip peers. That why I’m avoiding this part of the market.
The bottom line
Using the strategy to invest in UK shares outlined above, I believe I can double my money in the stock market.
The post How I’d double my money with UK shares appeared first on The Motley Fool UK.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays, boohoo group, and Frontier Developments. 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 2021