Cheap UK shares are where I’m looking to allocate my money. The cheap element refers to stocks that I feel are undervalued at present. Further, I’d look to allocate my cash within the UK, mainly via the FTSE 100 and FTSE 250. I think UK stock markets are still lagging in terms of performance versus the US. So how can I put all this into practice?
Investing regularly in smaller amounts
There are a few stages in my life when I’ll find myself with a large lump of cash. An annual bonus from work could be one. Or if I sell my house and downsize, I could have a surplus of cash. In these cases, I’d be fortunate enough to be able to invest in a number of cheap UK shares in one go.
Unfortunately, these events don’t come around each month. Therefore, I’m better off planning to invest a smaller amount (like £250), on a regular monthly basis. Yet while this approach this may be out of necessity, I think that investing a smaller amount regularly is actually a better way to go.
I can still achieve my aim of reaching a six-figure portfolio full of cheap UK shares, but it comes with less stress. I can put the £250 away each month and let it (hopefully) grow in the background without draining my liquidity. Over time, compounding helps my pot to get bigger.
For example, if I invested £250 a month in stocks that generated an average return of 8% a year, I’d have a pot worth over £100k by year 17. Given my age, this time frame suits me fine. I know there are no guarantees, of course and investing in stocks could also lose me money.
Which cheap UK shares should I buy?
That said, I’m happy with this investing process, so I need to look at which shares I should buy. Given that I’ll be investing each month, it’s a dynamic process. What I mean by this is that a stock that looks cheap today might not be cheap one year down the line. So I’ll need to stay active and spot opportunities as they present themselves.
At the moment, I’m looking at the opportunities for June. As such, I’m researching UK shares within the travel and tourism sector that I think look cheap. Ahead of a potentially bumper UK summer of higher consumer spending, I’d look to allocate my funds here.
In a few months’ time, these stocks might not be cheap anymore. In that case, I’ll assess what’s going on at that time. For example, in the autumn, the Bank of England will comment on how the economy is performing since lockdown eased. If the outlook is positive, concerns over negative interest rates could fall. In this case, I’d look to buy UK banking stocks at this point in time.
Overall, the main point regarding cheap UK shares is that I need to keep my finger on the pulse of what’s going on in the market and the broader economy. That way, I hope I’ll be on my way to building a six-figure portfolio.
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jonathansmith1 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 2021