Investing money in UK shares today may not seem to be the right means to make a million. After all, the stock market has recently experienced one of its fastest ever declines. There’s also the potential for a second stock market crash in the coming months.
However, many British stocks currently trade at low prices. That suggest they offer wide margins of safety. Over time, they could deliver improving profitability that leads to stronger investor sentiment. As such, buying a selection of them now may lead to high returns for ISA investors who can look beyond short-term risks.
Upcoming challenges to UK shares
At present, it’s easier for all investors to focus on the potential threats that could derail the recovery prospects for UK shares. For example, Brexit is likely to cause continued uncertainty for investors over the coming months. It’s an unprecedented event that’s likely to represent a significant change. Therefore, it may cause some investors to demand wider margins of safety before purchasing stocks.
Furthermore, the coronavirus pandemic continues to be a known unknown. How long it will last and the likelihood of potential lockdowns are impossible to quantify. Therefore, its ongoing presence may naturally mean investors are more risk averse than would otherwise be the case. This may lead to above-average volatility. It may as lead to continued low valuations for those companies most at risk of falling sales in the coming months.
A long-term recovery
Ultimately, investor sentiment towards UK shares is very likely to change. History shows that weak sentiment towards the stock market has only ever been temporary. Indeed, it’s always been replaced by more bullish sentiment as the economic outlook improves.
Video: Jim Cramer breaks down the favored stocks on the market (CNBC)
Therefore, before valuations among many stocks recover, now could be the right time to buy a selection of high-quality businesses while they trade at low prices. They could offer the greatest scope for capital growth due to their wide margins of safety.
Furthermore, many high-quality companies are currently trading at low prices that don’t reflect their financial positions or competitive advantages. They may be able to use current market weakness to extend their dominance to generate stronger profit growth in the coming years.
Making a million from UK shares could be a more realistic goal than many investors realise. For example, the stock market has produced high single-digit annual returns over recent decades. Assuming a similar return on a £750 monthly investment would produce a portfolio valued at £1m within around 35 years.
Of course, the amount of time it takes to obtain an ISA portfolio valued at over a million can be reduced through buying high-quality companies when they trade at cheap prices. With many British stocks appearing to do so today, now could be the right time to start investing money in the stock market.
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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.
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