Investing in equities such as cheap UK shares is one of the best ways to build wealth over the long term. However, some investors might find the process of investing in the stock market daunting, especially in the current environment.
With that in mind, here’s my game plan for investing £250, or any other amount, in cheap UK shares right now.
Time to buy cheap UK shares
A monthly investment of £250 might not seem like much at first. But this small monthly distribution could yield significant returns over the long run.
The best strategy to invest this money may be to buy a diversified portfolio of cheap UK shares. There are two ways to do this. Either buy a portfolio of stocks, or buy a UK market tracker fund.
Beginners may be better off following the second approach. This would enable them to build a portfolio at the click of a button, with no extra effort required. However, the first approach of buying individual cheap UK shares could yield higher returns.
Investors are spoilt for choice right now when it comes to finding cheap stocks. While the market has rallied from its March low over the past few weeks, many businesses have been left behind. Investors might do well focusing on these businesses.
Some of these companies might not make it through the crisis, but many others will. These stocks could produce huge returns for investors, offsetting any losses.
There are a number of cheap UK shares that stand out right now. Companies such as Cineworld, Aggreko, and NatWest seem to have been written off by the market. These businesses may face further uncertainty in the short term. But, in the long run, they could yield high total returns for investors.
They all have substantial competitive advantages and durable brands, which should help them attract customers. On a multi-year time horizon, the upside for financial firms like NatWest could be huge as a global economic recovery gets underway.
Before the crisis, the group was also well on the way to becoming a FTSE 100 income champion. When the banking organisation is allowed to resume dividends, that trend could continue.
Of course, there’s still the risk that some of these cheap UK shares might not make it. That’s why the best way could be to invest £250 a month in a diversified portfolio. This approach would allow investors to benefit from the upside while limiting losses if one company fails.
All in all, while the market has rallied over the past few months, there are still plenty of bargains out there. It could be a great time to invest in these bargains using a monthly investment plan to spread the risk while benefitting from the upside.
The post How I’d invest £250 a month in cheap UK shares appeared first on The Motley Fool UK.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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