Investing money in UK shares has been a successful means of making a million for many years. The FTSE 100, for example, has produced an annual return of around 8% (including dividends) since its inception in 1984.
Since then, some periods have represented better buying opportunities than others. Periods when valuations were low have generally provided greater capital return potential for new investors.
Therefore, now could be an opportune moment to build an ISA portfolio of UK shares. Weak investor sentiment and the stock market’s recovery prospects could make it easier to become an ISA millionaire in the coming years.
Investing money at the right time
Investing money while the valuations of UK shares are low has historically provided investors with greater return prospects than buying when valuations are high. However, the difficulty is that the best times to buy FTSE 100 and FTSE 250 shares are generally after a market crash, when investor sentiment is weak and the economic outlook is uncertain.
Those risks often dissuade investors from buying stocks, and may even push them towards lower-risk assets such as cash and bonds. However, the track record of the UK stock market shows that it has always recovered from its bear markets and downturns to produce new record highs. So, while it currently trades at a relatively low level, there may be significant recovery potential in the form of high capital gains available for long-term investors.
Overcoming short-term challenges
Clearly, investing money while risks are currently high is a tough task for any investor to overcome. Naturally, your gut instinct is to take less risk, rather than more risk, while the global economy is experiencing one of its most difficult periods in living memory.
However, if you have a long time horizon, there is likely to be ample time for UK shares to recover from any short-term setbacks along the way. Therefore, even if the FTSE 100 and FTSE 250 experience a second market crash this year, they are very likely to mount successful comebacks in the long run. Through building a diverse portfolio of high-quality stocks that have the financial means to survive a period of weak operating conditions, you can benefit from the recovery potential of the stock market.
Making a million
Even assuming that investing money today earns a rate of return that is similar to the FTSE 100’s track record, buying £750 of UK shares per month over 30 years would produce an ISA valued at over £1m.
However, with many UK shares trading at low price levels, it may be possible to obtain a higher rate of growth that shortens the amount of time required to build a seven-figure portfolio. Therefore, now could be the right time to start buying FTSE 100 and FTSE 250 shares for the long run.
The post Why I think investing money in the best UK shares today could make you an ISA millionaire appeared first on The Motley Fool UK.
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Motley Fool UK 2020