We all dream of making a fortune from the stock market. The bulging number of ISA millionaires over the past decade has raised the bar on what we, as investors, expect to make. But investing in UK shares shouldn’t just be seen as an effective way to get filthy rich.
The paltry size of the State Pension means that putting cash aside every month to buy UK shares in something like a Stocks and Shares ISA should be seen as a necessity for all of us. Not just for aspiring millionaires.
Can you imagine having to live on just £175.20 a week? That’s the reality today for Britons who retired with nothing in the way of savings. If you have gaps in your National Insurance contributions, you’ll be entitled to even less. The rising number of UK pensioners living in poverty illustrates how trying to survive on the State Pension alone is becoming increasingly difficult.
Protecting yourself with UK shares
Now don’t get me wrong. I’m not poo-pooing the importance of the State Pension. For those with no savings, or other income, it’s clearly indispensable. However, for those who plan to live a life of comfort in retirement then the benefit shouldn’t be seen as your main source of post-retirement income. This is why I’m buying UK shares to finance my lifestyle when I retire. And then use the State Pension to simply top up my income.
The beauty of investing in UK shares is that you don’t even have to save huge amounts every month to build a healthy retirement fund. Studies show us that long-term investors in UK shares tend to make an average annual return of at least 8% a year. This means a 25-year-old who invests just £100 every month can expect to make a minimum of £322,000 by the time they’re 65 (which is earlier than they’ll be able to access their State Pension).
The power of compounding means that even those who start late can build a big retirement pot. Say you have no savings at 50 and can afford to buy £500 worth of UK shares a month. Based on that 8% rate of return you’ll have likely built a pot worth at least £168,800 by age 65.
Making money after the stock market crash
Stock market crashes like the one of early 2020 can be scary things. But, over a long time horizon, their impact on overall shareholder returns tends to be ironed out. In fact, UK share investors can use market crashes to help them build a healthy retirement pot. By buying quality stocks at rock-bottom prices you and I can watch them balloon in value as economic conditions improve and profits rise.
With the help of experts like The Motley Fool you can significantly boost your chances of retiring comfortably. There’s a goldmine of undervalued UK shares following the market crash waiting to be tapped. And the Fool’s huge library of special reports can help you dig these out and build a balanced portfolio.
So don’t stress over the paltry State Pension. Take steps to protect yourself instead. You may even get rich in the process.