Investing in UK shares so far this year hasn’t been the most rewarding experience. While a good chunk of the larger corporations has remained relatively stable, the same can’t be said for small- and mid-cap stocks. In fact, since the start of 2022, the FTSE 250 is down over 20% and it’s down 15% in 12 months!
For investors operating on a short time horizon, things understandably seem bleak. But for those thinking in years rather than months, the current stock market turmoil has created a rare opportunity. Let’s explore how I’m planning to capitalise on it in my pursuit of making a million.
Putting things in perspective
The fall of many UK shares this year may seem horrendous. However, in the grand scheme of things, the situation really isn’t that bad. Looking at just the FTSE 250, the index is trading near the same price point as around 18 months ago.
Back then, the pandemic still had a firm grip on the world. Today, many companies are now in a much stronger financial position. Rising inflation and interest rates pose a significant threat, but only to the groups with limited cash supplies or high debt loads. Both of these can be easily checked by glancing at the balance sheet before making an investment decision.
During a stock market sell-off, logic and reasoning are often thrown out the window as emotion takes over. This is one a key reason why countless high-quality shares in the UK and abroad see their prices being slashed despite limited exposure to the catalyst that sparked the panic in the first place.
In my experience, if a company continues to deliver solid results yet the share price keeps falling, chances are a buying opportunity has emerged.
How I’m using UK shares to try for the big league
With so many high-quality stocks currently trading at significant discounts, the urge to go on a shopping spree is high. At least, that’s how I’m feeling at the moment. And while other alternative investment avenues exist, like real estate and cryptocurrency, stocks have proven to be the best vehicle for growing long-term wealth over the last century, or so. And that’s despite multiple economic declines, financial catastrophes, and even two world wars.
Picking stocks can be a scary process for some, especially when everything is seemingly in free fall. Fortunately, exchange-traded funds tracking an index bypasses this barrier, enabling investors to match the stock market’s performance.
Historically, this approach has yielded an average annual return of around 8% with UK shares. That may not seem like much. But thanks to the wonders of compounding, a £500 monthly contribution after 34 years translates into over £1m – not a bad nest egg to retire on!
Obviously, 34 years is a long time. However, this process can be accelerated. I could increase the monthly contributions. And I might improve the annual return by picking individual stocks. Is this risker? Of course. But it also unlocks more potential.
In fact, if I can boost my yearly return to 12%, I can cut eight years from my pursuit to make a million. That’s an ambitious goal though and I always have to remember that I could lose money with my investments as well as make it. But overall, I feel comfortable with my investment plan.