Motley Fool Australia

Here’s how I’d invest in shares today to achieve financial freedom

toddler in business attire surrounding by floating money representing asx shares beginner investor
Image source: Getty Images

An uncertain economic and political outlook may mean that a plan to invest in shares today seems unappealing to some individuals. After all, last year was an incredibly challenging period that could yet continue in the coming months.

However, on a long-term view, buying shares today could be a sound move. Through investing money in a diverse range of high-quality businesses while they trade at low prices, an investor may be able to achieve financial freedom.

Buying high-quality shares today

Investing in shares today clearly carries short-term risks. As such, it could be a good idea to buy companies that have solid financial positions and wide economic moats. Their strong balance sheets that contain little or no debt may mean they are under less pressure should the economic outlook deteriorate. This may increase their chances of surviving what could be a challenging period in 2021 to benefit from a likely long-term stock market recovery.

Similarly, companies with wide economic moats may be able to improve their market positions after present economic challenges. Their unique products, low cost bases or brand loyalty may mean they produce stronger growth rates in the coming years. This may contribute to higher share prices via more generous valuations that make a positive impact on an investor’s chances of achieving financial freedom.

Investing in shares today at low prices

Investing in shares today could be a profitable long-term move because of the low valuations that are present in many sectors. Investors seem to be cautious about the outlooks for a number of industries that could produce disappointing returns in the coming months. However, as the economy recovers and consumer confidence improves, those same sectors could benefit the most from an improving operating environment.

Therefore, unpopular shares that trade at cheap prices could provide scope for strong capital gains in the long run. Buying any asset at a discount to its intrinsic value has historically provided greater scope for capital growth as its outlook improves. Of course, it is important to only invest money in high-quality businesses, rather than simply buying cheap stocks. Otherwise, an investor may end up with a portfolio full of low-quality businesses that lack recovery potential.

Considering risk when aiming for financial freedom

Managing risk is likely to be an important consideration for any investor who is seeking to achieve financial freedom. After all, the world economy faces an uncertain future in 2021.

Therefore, diversifying across a wide range of companies and sectors could be a sound move. It may allow an investor to become less reliant on one or a small number of companies for their returns. This may reduce their risk of loss, improve their return prospects and increase their chances of becoming financially free in the coming years.

These Dividend Stocks Could Be Your Next Cash Kings (FREE REPORT)

Motley Fool Australia's Dividend experts recently released a brand-new FREE report revealing 3 dividend stocks with JUICY franked dividends that could keep paying you meaty dividends for years to come.

Our team of investors think these 3 dividend stocks should be a 'must consider' for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don't miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Returns As of 15th February 2021

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…