Wondering whether to invest in a Stocks and Shares ISA right now? Or do you think it’s too risky given the war in Iran?
Stock markets will always be volatile. But they always bounce back from short-term setbacks. We’ve already had three this decade: the pandemic, the Ukraine energy shock, and US tariffs. Every time, shares slumped but quickly recovered. Investors who bought the dips were handsomely rewarded. So are we looking at another buying opportunity? I think we are.
A great time to go bargain-hunting
Over the last decade, the average Stocks and Shares ISA returned on average 9.5% a year, research from Investing Insiders shows. So what about the average Cash ISA? Returns averaged just 4% a year. So what does that mean in pounds and pence?
Nine years ago, on April 6, 2017, the ISA contribution limit was raised to £20,000. Let’s say an ISA investor tucked away a lump sum £18,750 that month.
Now let’s assume they got that average 9.5% annual total return from shares. Today, their money would be worth £42,435. If they’d got 4% from an admittedly-less-risky Cash ISA, they’d only have £26,687. That’s a big performance gap, and it will only widen the longer they invest. This shows how taking on a bit more risk can be a lot more rewarding.
Look how far this lot has fallen!
Today, I can see plenty of FTSE 100 stocks trading at tempting valuations. The following six have all crashed more than 20% in the last three months. One is down more than 30%. I think volatility like this is a buying opportunity.
| Stock | 3 months | 1 year | 5 years |
| 3i Group | -20.1% | -37.3% | 112.5% |
| Reckitt Benckiser | -20.7% | 2.1% | -28.3% |
| Persimmon | -20.1% | -11.2% | -65.1% |
| Melrose | -21.2% | 20.9% | 2.5% |
| Babcock International | -22.2% | 42.4% | 277.2% |
| Barratt Redrow (LSE: BTRW) | -32.3% | -43.4% | -67.2% |
Housebuilder Barratt Redrow is down 32.3% in just three months. As my table shows, it’s been struggling for some time, down 67.2% over five years. Why has it taken such a battering?
The housebuilding sector has been hit across the board. Rival Persimmon is down 65.1% over five years. High interest rates, affordability issues, and the closure of the Help to Buy scheme in 2023 have all squeezed demand. Inflation also drove up the cost of labour and materials, and the cladding fire safety scandal triggered hundreds of millions in compensation.
This year, hopes of further interest rate cuts have been postponed by the potential oil price shock. So should investors back off? I don’t think so. All these challenges now look to me to be priced in. Barratt Redrow trades on a modest forward price-to-earnings ratio of just 10.2. Better still, its shares are forecast to yield a bumper 5.67% this year, rising above 6% in 2027.
Of course, dividends aren’t guaranteed. As the UK economy slows, the housing market could struggle for some time. I’ll be watching its progress like a hawk. But with a long-term view, I think housebuilders like Barratt Redrow look like some of the most FTSE 100 compelling income and growth opportunities to consider today, if investors are up for the challenge.
