Investing in cheap UK shares today may not seem like a sensible idea. After all, Britain’s weak economic outlook, continued supply chain disruptions, and sky-high inflation don’t exactly make an ideal operating environment for businesses. And with consumer spending falling off a cliff, fears of a new recession are sending stock prices tumbling.
However absurd as it sounds, now could be the perfect time to start investing in stocks for the long run.
While the short-term outlook may look bleak, the long-term strategy for many businesses is still firmly intact. Thanks to all the volatility, plenty of high-quality enterprises are trading at significant discounts. And as history has shown countless times, buying stocks while they’re cheap is a proven strategy for achieving impressive long-term returns.
Therefore, investors with little-to-no retirement savings today may have just been handed an opportunity of a lifetime to improve their financial position. So much so that early retirement might be in the cards.
Finding the best cheap UK shares to buy
Over the last 12 months, UK shares have been hammered hard. In some cases, the rapid sell-off of stocks might be justified. Let’s not forget that changes in monetary policy, like interest rates, significantly impact businesses, especially over-leveraged ones.
But that doesn’t mean all companies are doomed to fail. In fact, even those currently suffering short-term impacts on operations may be primed to thrive in the long run. And yes, that includes unprofitable firms as well!
Regardless of what share prices may indicate, companies with solid balance sheets and uncompromised business models are most likely capable of weathering this storm. And once investor sentiment eventually returns to positivity, these are the UK shares most likely to deliver a spectacular recovery performance.
That’s why investors aged 40, or anyone with a long time horizon for that matter, can capitalise on today’s uncertainty to potentially propel their portfolios to new heights.
Investing for retirement
Obviously, buying UK shares while volatility is near record highs opens the door to risk. And even if I successfully identify terrific businesses trading below their intrinsic value, the stock price may continue to fall considerably.
That’s why it’s critical to only invest capital not needed for at least three to five years minimum. There’s nothing worse for an investor than being forced to sell a top-tier company at a terrible price to meet living expenses.
Fortunately, building long-term wealth in the stock market only requires a modest amount of money each month. The FTSE 250 has historically provided an 11% average annualised return. Suppose I’m able to spare £350 from my monthly paycheque for my investments while matching this index? In that case, after 30 years, my portfolio could be worth anywhere up to £981,180.
Of course, there is no guarantee this level of return will continue moving forward. And it could take significantly longer to reach this milestone. However, it’s also true that buying UK shares today, while they’re cheap, could unlock a higher annual return.
As such, I may end up growing my retirement fund far beyond expectations.