Starting to buy UK shares after the recent market crash may seem like a daunting prospect for any investor. However, for investors with no previous retirement savings, it may prove to be an especially challenging task. Risks such as Brexit and a second wave of coronavirus could weigh on the financial performances of a wide range of FTSE 100 and FTSE 250 shares.
However, through buying a selection of high-quality businesses today, and holding them for the long run, you could build a surprisingly large nest egg that enables you to retire early.
Buying UK shares after a market crash
The best times to buy UK shares have historically been soon after a market crash. Why? At such times many companies trade at relatively large discounts to their intrinsic values. This can mean that they offer greater return prospects. And the stock market has always recovered from its various bear markets to post new record highs.
Of course, there is a risk that investors will buy before the end of a market decline. This can mean that they experience paper losses on their investments. However, for any investor who has a long-term time horizon, the short-term performance of their portfolio is unlikely to have a direct impact on their retirement plans. As such, buying during periods where the economy’s outlook is challenging and there has recently been a market crash could be a sound move.
Starting at age 50
Starting to invest in UK shares at age 50 means that there is still time to build a sizeable portfolio prior to retirement. And that process is being aided by the recent market crash. The FTSE 100 has a solid track record of delivering annualised total returns of around 8%. But buying cheap stocks today could enable you to obtain an even higher annual return as the wider market recovers.
Even assuming an 8% per annum return, a 50-year old is likely to have sufficient time to build a generous retirement fund. For example, investing £750 per month for the next 15 years could lead to a nest egg valued at around £245,000. From that, a passive income of around £9,800 per annum is achievable assuming that a yield of 4% is delivered.
Long-term potential
This level of income may not be sufficient to provide financial freedom in retirement. But it shows that starting to buy shares after the market crash from a standing start could be a worthwhile move for anyone seeking to build a retirement fund to reduce their reliance on the State Pension.
As such, now could be the right time to start taking advantage of cheap UK shares caused by the recent stock market crash. They could improve your long-term financial outlook, and may even help to bring your retirement date a little closer.