Despite the FTSE 100 making an impressive comeback from the 2022 stock market correction, there continues to be plenty of cheap shares to choose from. The index overall is actually now trading near record highs.
Yet, not every constituent has recovered from the manic selling last year. And that may have provided a rare opportunity for investors to kick-start their journey toward becoming an ISA millionaire.
As bonkers as it may sound, investing just £500 a month over the long term is theoretically enough to build a £1m Stocks and Shares ISA. In fact, plenty of people have already done it, securing financial independence in the process.
Using the Footsie to get richer
We’re currently living in a pretty uncertain economic environment. Sure, inflation has started to come down, but the risk of a recession hasn’t gone away. And it undoubtedly takes some courage to start putting money into the stock market.
However, that’s been the situation in every bear market. And while the short-term situation can be a volatile experience, the long-term shows a recurring trend. Investing in bear markets is how fortunes are made.
Some of the best-performing years of the FTSE 100 and other leading stock market indices directly followed after a severe downturn. And capitalising on this eventual upward momentum can drastically accelerate the wealth-building process.
That’s why, despite all the extreme crashes and declines throughout history, the UK’s flagship index has delivered an average annual return of around 8%. That’s considerably more than any savings account can muster. And by replicating this performance with something as simple as a low-cost index fund, investing £500 a month can transform into a £1m portfolio within 34 years.
Investing has its risks
The FTSE 100 contains the largest 100 companies in order of market-cap on the London Stock Exchange. But even Britain’s biggest businesses have their threats. Suppose the UK falls into a deep recession? In that case, as consumer spending declines further, corporate earnings are set to be in for quite a tumble.
With tightening cash flows, dividends are likely to suffer, as are share prices. And the recent stock market rally could end up reversing in the short-term. However, there’s a glimmer of hope. Just a few days ago, the Bank of England revised its outlook upward on the back of improving economic conditions. As such, the current upward momentum may be set to continue.
Regardless, near-term uncertainty remains high. But when taking a long-term perspective, the future of the FTSE 100 looks bright. After all, the index has a perfect track record of recovery from even the most dire economic disasters.
Of course, an 8% annual return can’t be guaranteed and any investment could generate less, or even lose money. But I believe it’s likely that capitalising on cheap valuations today could result in impressive wealth generation further down the line.
