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Why investing money in the best shares at cheap prices can help you to make a million

Peter Stephens
·3-min read
Sign pointing towards route to becoming a millionaire.
Sign pointing towards route to becoming a millionaire.

The stock market crash has caused some of the best shares around to trade at cheap prices. This could present a buying opportunity for long-term investors. Solid businesses may offer less risk and higher growth potential than their peers. Buying them at low prices may provide greater scope for capital growth.

While they may experience further volatility in the near term, over the long run they could boost your portfolio’s returns. They could even help you to make a million in the coming years.

Buying the best shares currently available

Focusing your capital on the best shares you can find may improve your financial prospects. They are likely to include those companies that have a clear competitive advantage versus their peers. This may mean they can adapt to changing operating conditions, as well as survive a weak economic period better than most companies in the same industry or sector.

Over the long run, holding solid businesses in your portfolio can reduce your overall risk and improve returns. They may be able to rely on stronger finances to support investment in growth. Similarly, they may use a wide economic moat to deliver higher profit growth that translates into a rising share price. As such, identifying the most attractive businesses in a specific sector through analysing their finances and market position could be a worthwhile move.

Cheap prices following the stock market crash

Although some of the best shares have rebounded after the stock market crash, many attractive businesses continue to trade at cheap prices. This may be because they face uncertain trading outlooks in the near term that have caused investors to demand a wider margin of safety.

As with any asset, buying at a lower price is more advantageous than purchasing it when it is more expensive. Today’s cheap stocks may not produce rapid returns to match their previous record highs. However, as the world economy’s outlook improves, they are likely to experience more robust trading conditions that lifts their profitability. This may lead to capital returns for investors who purchase them today while they offer wide margins of safety.

Making a million

Investing in the best shares today may improve your prospects of making a million. The stock market’s 8% long-term annual return would turn a £100,000 investment today into £1m over a 30-year period. However, you could reduce the amount of time it takes to build a seven-figure portfolio by focusing your capital on a range of high-quality businesses while they trade at low prices.

History suggests that stock prices will move higher in the coming years as the economic outlook improves. Therefore, now may be the right time to capitalise on low valuations to improve your financial outlook.

The post Why investing money in the best shares at cheap prices can help you 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