The stock market crash has naturally caused investors in UK shares to become more cautious. After a bull market that lasted in excess of a decade, the FTSE 100 and FTSE 250 experienced fast-paced declines that highlighted how volatile the stock market can be.
The low share prices now present after the market decline could provide long-term buying opportunities. As such, now could be the right time to start investing money regularly in a diverse range of UK shares. Doing so could improve an investor’s chances of making a million.
The effects of a stock market crash
The stock market crash had left a wide range of UK shares trading at exceptionally low prices. In fact, companies operating in some sectors with unfavourable near-term outlooks trade at prices that haven’t been seen since the last bear market in 2008/09.
Certainly, their prices could move lower in the short run. However, in many cases, they appear to offer wide margins of safety that suggest investors have factored in a difficult period. This may mean they’ve the capacity to deliver a large amount of capital appreciation over the long run as the world economy’s outlook steadily improves.
Buying UK shares today
Of course, simply buying a selection of UK shares after the stock market crash may not provide optimum returns in the long run. Therefore, assessing the quality of companies before purchase could be more important than ever. It may help an investor to avoid unnecessary risks and benefit from stronger recovery potential in the coming years.
As such, focusing on high-quality businesses with solid financial positions and competitive advantages may be a sound move. This doesn’t necessarily mean buying companies with the best near-term prospects. Rather, it means purchasing those stocks that can survive the short-term economic crisis facing the world. And then benefit from the subsequent recovery.
Furthermore, purchasing UK shares on a regular basis after the stock market crash could be a shrewd move. It may enable an investor to take advantage of potential further market declines over the coming months. That’s because they will have more capital available to buy undervalued British shares.
Making a million
Investing money regularly in UK shares after the stock market crash could lead to impressive returns in the long run. The stock market’s track record of growth suggests that an 8% annual return is very achievable for long-term investors. Therefore, investing £1,000 per month over a period of just over 25 years could lead to a portfolio valued in excess of £1m.
Certainly, more challenges could be ahead in the short run. However, through buying high-quality shares regularly and building a diverse portfolio, an investor may be able to significantly improve their financial prospects over the coming years.
The post Stock market crash: I’d start investing £1,000 a month in UK shares today to make a million appeared first on The Motley Fool UK.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020