How I'd drip-feed £250 a month into UK shares in an ISA to get rich in a stock market rally

How I’d drip-feed £250 a month into UK shares in an ISA to get rich in a stock market rally

Regularly investing in UK shares through an ISA could lead to high returns in a stock market rally, in my view. Here’s how I’d go about doing it.

Peter Stephens ❯

Having held various senior management positions in the manufacturing sector, Peter founded his own manufacturing company in 1996. This was subsequently sold in 2007. Meanwhile, his passion for investing (which began during the privatisations of the 1980s) remains strong and he couples this with writing for The Motley Fool as a Contractor. His investment style is value-oriented; focusing on company fundamentals, as well as assessing the strength and presence of a competitive advantage. While above-average growth prospects remain very attractive, a greater focus on dividends has crept in since Peter became a part-time retiree in 2007.

Published 22 November, 2020 12:56 pm GMT

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

.With UK shares still trading at cheap prices in many cases, drip-feeding money into FTSE 100 and FTSE 250 stocks could lead to impressive returns in a stock market rally.

Certainly, there are short-term risks ahead that may derail the performance of stocks in the short run. However, the track record of the FTSE 100 and FTSE 250 shows that a long-term stock market rally is likely after this year’s market crash. As such, a diverse portfolio of high-quality stocks could deliver attractive performances in the coming years.

A stock market recovery that lifts UK shares

The stock market rally that’s lifted the prices of many UK shares may or may not continue in the short run. The prospects for FTSE 100 and FTSE 250 shares continue to be uncertain. Risks such as Brexit and the coronavirus pandemic could negatively impact on operating conditions and investor sentiment in the coming months.

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However, over the long run, a strategy of drip-feeding money into UK shares could pay off. The past performance of the stock market shows it’s always delivered new record highs after its variety of declines. By doing so, it’s produced annual total returns of around 8%. Similar returns could lead to a surprisingly large ISA portfolio value for regular investors in FTSE 100 and FTSE 250 shares.

Regular investing in FTSE 100 and FTSE 250 shares

A monthly investment of £250 in UK shares could lead to a surprisingly large portfolio in the long run. Assuming an 8% annual return, which is in line with the past total returns of the FTSE 100 and FTSE 250, it could produce an ISA portfolio valued at around £575,000 over a 35-year period.

Clearly, not every investor will have £250 to invest each month. Others may not have 35 years available to allow it to grow. However, it may be possible to obtain a market-beating rate of return. That means purchasing today’s high-quality FTSE 100 and FTSE 250 stocks when they trade at cheap prices. They may offer greater scope to deliver capital growth over the long run. Certainly as a stock market rally is likely to continue in the coming years.

Building a solid ISA portfolio

Of course, it’s important to consider risk, as well as potential returns, when investing money in UK shares. A regular investment strategy allows an investor to take advantage of future stock market crashes because they can purchase shares at lower prices. Furthermore, building a diverse portfolio of stocks from across the FTSE 100 and FTSE 250 can reduce risk. That’s because one company’s performance has a relatively small impact on overall returns.

Certainly, the near-term prospects for shares may be uncertain. It’s about investing money regularly in a diverse range of high-quality shares at low prices. By doing that, it’s possible to generate high returns in an ISA in a stock market rally.