Investing £5 per day in cheap UK shares may not sound like an effective means of building a retirement portfolio. However, over the long run, it has the potential to become a surprisingly large nest egg that could provide a worthwhile passive income in older age.
Therefore, rather than buying Bitcoin, now could be the right time to start investing in shares after the recent market crash. They may offer more reliable long-term returns that improve your chances of enjoying financial freedom in retirement.
Investing £5 per day in cheap UK shares
Following the market crash, there are a wide range of cheap UK shares available at the present time. Although they may face uncertain near-term outlooks, their long-term growth potential appears to be high. For example, the FTSE 100 has always recovered from its declines to post new record highs. A similar outcome therefore seems likely to take place over the coming years.
Investing £5 per day may not sound like much on its own. In fact, over a 30-year time period it would amount to around £55,000. However, when the impact of compounding is taken into account, it could become a surprisingly large sum.
In fact, assuming the stock market grows at the same 8% rate per year as it has done in the past, a £5 daily investment in stocks could become around £207,000 within 30 years. Assuming a 4% annual income return on cheap UK shares, this would provide a passive income of around £8,300, which is almost as much as the State Pension.
Buying cheap UK shares has become much easier for smaller investors as the internet has provided opportunities to manage your portfolio online. Regular investing services are available from a wide range of sharedealing providers. They charge commission rates as low as £1.50 per trade, which helps to keep the cost of buying shares even lower.
Certainly, you may wish to invest on a monthly basis to further reduce costs. And, in order to diversify at the start, buying units in a FTSE 100 or FTSE 250 tracker fund could be a good idea. However, over time, you may wish to unearth the best value opportunities in the stock market. They can provide higher rates of return that ultimately improve your retirement nest egg’s growth prospects.
Therefore, while Bitcoin’s recent rise may make it seem more attractive than cheap UK shares, the stock market’s past performance suggests it’s a more reliable means of building a retirement portfolio.
With many stocks currently trading at low prices, now could be an opportune moment to start investing even modest amounts of money in a diverse range of FTSE 100 and FTSE 250 shares. Over time, they could provide a surprisingly large passive income that means you can retire earlier than planned.
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.