Investing £10k, or any other amount, in the best UK shares could produce a surprisingly large ISA portfolio in the long run. The track record of indexes such as the FTSE 100 and FTSE 250 suggests a recovery from the recent stock market crash is likely over the coming years.
Therefore, buying companies when their share prices are cheap could be a means of generating high returns in the long run. It could increase your chances of becoming an ISA millionaire.
Identifying the best UK shares today
The stock market crash means identifying the best UK shares to buy today is a more challenging task than it was even just a few months ago. Asset prices have fallen, profit forecasts have largely been cancelled, and the prospects for the economy are very uncertain.
However, it’s still possible to identify high-quality businesses. For example, they may have a competitive advantage over their peers that’ll provide them with a greater chance of surviving an economic downturn. It may also help them to benefit from a likely recovery.
Their competitive advantage may include factors such as greater diversity, unique products, a stronger balance sheet with greater liquidity, or strong brand loyalty. Buying UK shares with some, or most, of those traits could improve your chances of generating high returns.
Low valuations
Similarly, purchasing UK shares that offer wide margins of safety may be a shrewd move. This process may be more difficult due to an uncertain outlook. However, it’s still possible to compare a company’s value versus those of its peers. Stocks that trade at a discount to their rivals, despite offering recovery potential, could produce relatively high returns.
Although valuations across the FTSE 100 and FTSE 250 may move lower over the coming months, in the long run they’ve the capacity to rise significantly. Therefore, it’s a good idea to attempt to purchase UK shares while they offer discounts compared to their intrinsic values. This may help to protect your portfolio’s performance to some extent should there be a second market crash.
Investing £10k today
Investing £10k in UK shares today could produce higher returns than those of the wider stock market over the long run. As such, even though the historic 8% annualised returns of the FTSE 100 suggest that it would normally take 60 years for £10,000 to grow to £1m, that process may be substantially shortened. That can be achieved through buying high-quality companies with competitive advantages when they offer wide margins of safety.
Many FTSE 350 stocks currently trade at price levels last seen in the previous bear market during 2008/09. So now could be just the right time to build a diverse ISA portfolio of companies that can produce high capital returns as the wider market recovers.