How I’d invest in UK shares in this stock market recovery

Buying UK shares with solid financial positions and low valuations from a diverse range of sectors could be a sound move in this stock market recovery.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investing money in UK shares could be a logical move because of the prospects for a stock market recovery. Indexes such as the FTSE 100 and FTSE 250 have always bounced back to reach new record highs following their various bear markets. Since they both trade below their all-time highs, there may be scope for further capital gains after the recent stock market rally.

Clearly, risks remain elevated at the present time. There’s never any guarantee of making a profit in any stock. However, through buying companies with solid financial positions and low valuations, it may be possible to capitalise on a rising stock market price level.

Reducing risk when holding UK shares

It isn’t possible to eliminate risk entirely when investing in UK shares. Buy buying a diverse range of companies with sound financial positions can help to reduce the risk of loss.

A diverse portfolio is less likely to be negatively impacted by poor performance from one or more stocks. This means that company-specific risk is lower versus a concentrated portfolio. The economic outlook is unstable at the present time. Meanwhile, any company could run into trouble in the coming months and years. So buying a range of businesses operating in a variety of sectors could be a sound move.

So too could buying UK shares with sound finances. The decade-long bull market that ended in 2020 arguably encouraged an increasing amount of risk-taking from companies. As such, some businesses increased their borrowings to maximise returns, and failed to adequately diversify their own operations.

Buying stocks with modest debt levels and strong competitive positions in a range of areas could lead to less risk, as well as higher long-term returns.

Buying shares with low valuations ahead of a stock market recovery

Companies that have low valuations may offer greater scope for capital gains in a stock market recovery. At the present time, many UK shares in sectors such as travel & leisure, consumer goods and healthcare trade on valuations that are significantly lower than their long-term historic averages.

Certainly, they’ve experienced disruption in many cases. However, they may have the financial means to cope with slow economic growth in the short run. This means they can capitalise on a return to stronger prospects in the long run.

A value investing strategy has been relatively successful in the past for some investors. Using the ups-and-downs of the market cycle to buy high-quality UK shares when they trade at low prices seems to be a logical approach to take to maximise returns.

With a stock market recovery likely to be ahead, following this strategy could yield high returns in the coming years that may even be ahead of those on offer from the wider market.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Closeup of "interest rates" text in a newspaper
Investing Articles

Here’s why 2025 could give investors a second chance at a once-in-a-decade passive income opportunity

Could inflation hold up interest rates in 2025 and give income investors a second opportunity to buy Unilever shares with…

Read more »

Investing Articles

As analysts cut price targets for Lloyds shares, should I be greedy when others are fearful?

As Citigroup and Goldman Sachs cut their price targets for Lloyds shares, Stephen Wright thinks the bank’s biggest long-term advantage…

Read more »

Investing Articles

Is passive income possible from just £5 a day? Here’s one way to try

We don't need to be rich to invest for passive income. Using the miracle of compounding, we can aim to…

Read more »

Middle-aged black male working at home desk
Investing Articles

If an investor put £20k into the FTSE All-Share a decade ago, here’s what they’d have today!

On average, the FTSE All-Share has delivered a mid-single-digit annual return since 2014. What does the future hold for this…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

One FTSE 100 stock I plan to buy hand over fist in 2025

With strong buy ratings and impressive growth, this FTSE 100 could soar in 2025. Here’s why Mark Hartley plans to…

Read more »

Investing For Beginners

If a savvy investor puts £700 a month into an ISA, here’s what they could have by 2030

With regular ISA contributions and a sound investment strategy, one can potentially build up a lot of money over the…

Read more »

artificial intelligence investing algorithms
Investing Articles

2 top FTSE investment trusts to consider for the artificial intelligence (AI) revolution

Thinking about getting more portfolio exposure to AI in 2025? Here's a pair of high-quality FTSE investment trusts to consider.

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Do I need to know how Palantir’s tech works to consider buying the shares?

Warren Buffett doesn’t know how an iPhone works. So why should investors need to understand how the AI behind Palantir…

Read more »