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I’d drip-feed £500 a month into UK shares in a Stocks and Shares ISA to make a million

Peter Stephens
·3-min read
Chart showing an upwards trend, possibly in the FTSE 100
Chart showing an upwards trend, possibly in the FTSE 100

Drip-feeding money into UK shares via a Stocks and Shares ISA may be a simple and effective means of making a million.

Indexes such as the FTSE 100 and FTSE 250 have long track records of delivering high single-digit returns on an annual basis. Furthermore, buying cheap stocks after a market crash can produce even greater returns over the long run.

A Stocks and Shares ISA also offers tax efficiency at a low cost. As such, regularly investing money in a diverse range of British shares may be a shrewd long-term move.

Long-term capital appreciation potential from UK shares

A Stocks and Shares ISA portfolio of UK shares could offer more impressive return prospects than the market’s past performance. At the present time, many FTSE 100 and FTSE 250 shares trade at low valuations. These, in many cases, are below their historic averages. Valuations have historically reverted to their averages over the long run. So there seems to be significant scope for the stock prices of many businesses to rise as the economic outlook improves.

Furthermore, investors who have purchased cheap shares after a stock market crash have historically generated high returns. An investor who bought a diverse range of FTSE 100 shares after the 1987 crash is likely to have experienced significant capital appreciation. The same could be said after the dotcom bubble and global financial crisis.

Many UK shares are yet to recover from the 2020 stock market crash. This means there may be opportunities to buy high-quality companies for less than they are worth. There is weak investor sentiment towards some sectors, as well as increased risk aversion in an uncertain economic period. But this may create buying opportunities for the long run.

Investing money in a Stocks and Shares ISA

A Stocks and Shares ISA could be a simple and cost-effective means of investing money in UK shares for the long term. It can be opened online in a matter of minutes. And low charges make it accessible to a wide range of investors.

Clearly, it will take time to build an ISA portfolio valued at over £1m. However, drip-feeding money into FTSE 100 and FTSE 250 shares while they are cheap is a great way forward, I feel. It may lead to market-beating performance over the long run. Even assuming the same return as the stock market’s past performance means that a £500 monthly investment could become worth over a million within 35 years.

UK shares are currently priced at cheap levels. So there may be an opportunity to build a surprisingly large ISA portfolio in the coming years. The stock market crash is unlikely to remain at the forefront of investor minds in perpetuity, of course. It is likely to give way to improving sentiment that enables the new bull market to have a positive influence on company valuations.

The post I’d drip-feed £500 a month into UK shares in a Stocks and Shares ISA to make a million 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 2020