Many UK shares have delivered improving returns in recent months as a result of the stock market recovery following the 2020 market crash.
Despite this, many high-quality companies trade at attractive prices. Therefore, they could offer high returns relative to other mainstream asset classes.
Furthermore, many UK stocks have high yields at the present time that could allow them to deliver appealing total returns in the coming years.
Low valuations among many UK shares
Despite improving investor sentiment over recent months, many UK shares continue to trade at cheap prices. There are risks facing the outlook for many sectors that could derail their profit growth potential. However, in a number of cases, FTSE 350 shares appear to be undervalued.
Buying cheap stocks can be a successful means of generating high returns in the long run. After all, the market operates in cycles that can mean an investor who purchases during a period of low valuations can achieve market-beating returns in a stock market recovery.
Such a strategy has been very successful in the past. And, with the stock market having rallied to new record highs after each of its major declines in previous years, buying cheap UK shares today could prove to be very profitable in the long run.
Relative appeal compared to other assets
Buying UK shares now could also be a sound move because of the lack of appeal elsewhere. Other mainstream assets such as cash and bonds have generally offered lower returns than equities in the past.
However, the difference between the potential returns from shares and other income-producing assets may now be wider than ever. Indeed, low interest rates mean it may be difficult to beat inflation with cash or bonds over the long run.
Similarly, high house prices mean that the scope for capital gains may be limited for buy-to-let investors. And, with gold likely to experience lower demand as the world economy recovers, buying a diverse range of UK shares could be a more profitable move.
Passive income opportunities
Even after the recent stock market rally, many UK shares offer high yields relative to their historic averages. They may become increasingly attractive to investors who are seeking to make a passive income. That’s partly because of a lack of income opportunities elsewhere. But also because many stocks are likely to deliver impressive dividend growth in the coming years.
The world economy has always recovered to produce positive GDP growth following its down periods. A similar outcome therefore seems likely in the coming years. This could catalyse the performances of UK stocks and lead to growing dividends over the long run.
The end result could be high total returns for investors that makes now the right time to start buying a diverse range of UK equities.
- I’d invest £500 in these FTSE 250 growth stocks
- With house prices set to fall, I’d avoid buy-to-let in 2020 and buy UK shares
- I think these UK shares could triple my money in 2021
- No savings at 40? I’d follow Warren Buffett’s advice to retire early
- A top UK (and US) share I’d buy in my ISA for 2021 to get rich and retire early
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.
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