The last two weeks have seen a sharp stock market recovery take hold. For example, the FTSE 100 has risen 15% since the end of October, with many UK shares rising at an even faster pace due to improving investor sentiment.
Looking ahead, further gains could be ahead for the stock market over the long run. As such, investing £500 a month in a selection of FTSE 100 and FTSE 250 stocks could lead to a surprisingly large portfolio. It may even allow an investor to make a million during their lifetime.
A stock market recovery
Clearly, there is still some way to go before a stock market recovery would make up lost ground for UK shares in 2020. Indeed, the FTSE 100 continues to trade around 15% down on its 2020 starting price.
However, the recent rise in valuations of cheap shares shows that there is reason for investors to be optimistic about the stock market’s long-term prospects. Ultimately, the FTSE 100 and FTSE 250 have always recovered from their various declines to post new record highs. The path towards a market rally may not be a smooth one due to risks such as Brexit and coronavirus. However, rising stock prices could have a positive impact on investor portfolios over the long run.
Investing money in UK shares today
Investing money in UK shares to capitalise on a stock market recovery could be a sound move. However, since risks remain, diversifying across multiple companies and sectors could be a profitable strategy. It may reduce an investor’s reliance on a small number of businesses and industries while their outlooks remain uncertain.
Furthermore, identifying stocks that trade at a discount to what they are worth could be a logical approach. This may mean that an investor buys stocks with solid financial situations and strong market positions while they face challenging near-term outlooks. Weak investor sentiment towards such companies may mean they benefit the most from a market rally in the coming years.
A stock market recovery may also mean that UK shares in unpopular sectors offer greater capital appreciation potential. Therefore, investing money in industries which have been overlooked by investors so far this year may allow an investor to grab FTSE 100 and FTSE 250 bargains prior to further stock market gains.
Making a million
Investing money regularly in UK shares could allow an investor to benefit from a stock market recovery. Even if they only receive the market rate of return, it may lead to a surprisingly large portfolio in the long run.
For example, the FTSE 100 has produced an annualised total return of 8% since its inception in 1984. Assuming the same rate of growth on a £500 monthly investment could lead to a portfolio valued at £1m within 35 years. As such, with many stocks still priced at low levels after the market crash, there may be buying opportunities available on a long-term outlook.
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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.