Starting to buy UK shares at age 50 could lead to a surprisingly large nest egg that enables you to retire in comfort. With indexes such as the FTSE 100 and FTSE 250 currently trading at relatively low levels, a number of stocks appear to offer cheap valuations that could rise over the coming years.
However, it is crucial to diversify due to the economic risks that are present, while focusing your capital on the strongest companies within the most attractive sectors. In doing so, you could access the most attractive investment opportunities that make the biggest impact on your retirement plans.
Diversifying across UK shares
It is tempting to simply buy the most attractive UK shares available at the present time. They may offer the greatest return potential, but could also experience a challenging period that negatively impacts on your portfolio’s performance.
As such, it is important to diversify your portfolio through buying companies that operate in different sectors and geographies. In doing so, you can reduce the impact of a period of negative performance from one or more stocks on your wider portfolio. This may lead to a lower risk of loss, as well as the potential for higher returns as your portfolio’s performance can be positively impacted by a wider range of high-quality businesses.
With there being a wide range of cheap UK shares currently available, and the cost of buying them being relatively low, diversifying across a range of businesses may prove to be more attainable than many investors realise.
Financial strength
Buying UK shares with solid finances may also improve your retirement prospects. They may be better able to survive what could prove to be a period of sluggish economic growth that causes weaker businesses to fold. Similarly, companies with modest debt levels and strong cash flow may be better placed to gain market share and benefit from a likely long-term economic recovery.
Through identifying those businesses that have strong balance sheets and investing in them, you can improve your portfolio’s risk/reward ratio. It may also provide peace of mind should there be a further market crash or prolonged period of economic weakness.
Growth sectors
Identifying which UK shares operate in growth sectors is a tough task at the present time. Changing consumer trends mean that some industries may never return to growth, while others could see improving operating conditions.
However, some industries such as healthcare, online retail and global consumer goods businesses appear to have bright futures. Through investing in companies within those sectors, as well as in other industries with favourable outlooks, you can position your portfolio for growth.
While not all UK shares within your portfolio may necessarily produce high returns, the stock market’s track record suggests that investing in high-quality stocks today for the long run could lead to a surprisingly large retirement portfolio.