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3 reasons I’d buy FTSE 100 stocks in an ISA in 2020!

Despite the FTSE 100 recording a 12% gain in 2019, the index continues to offer long-term investment appeal. Many of its members trade on low valuations, and could deliver higher returns than other mainstream assets in 2020.

As such, now could be the right time to buy a range of large-cap shares within a Stocks and Shares ISA. They may produce impressive tax-efficient returns that could boost your financial prospects.

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While the FTSE 100 currently trades within 5% of its all-time high, it appears to offer good value for money. As such, it could deliver further capital growth following an impressive performance in 2019, and over the past decade.

Certainly, after a long bull run, a bear market is likely to occur at some point in the coming years. However, with the world economy forecast to grow at an encouraging pace in 2020, the valuations across numerous sectors within the FTSE 100 appear to be relatively low. Investors seem to be factoring in a challenging period for the index that may not actually occur in 2020. This may allow long-term investors to capitalise on favourable risk/reward ratios that ultimately produce high returns in the long run.

Relative appeal

Compared to other mainstream assets such as bonds, cash and property, the FTSE 100 appears to be highly attractive. Interest rates are not expected to rise rapidly in 2020 or in the coming years, which may mean that savers endure further negative real-terms returns. Bond yields are low for investment-grade issues, which means that they may only be able to offer modest real-terms returns. And with tax changes across the buy-to-let sector, the net returns available to landlords may prove to be very disappointing.

Therefore, while risks such as Brexit and the US election are set to dominate 2020, investing in the stock market could prove to be the best use of your capital. The potential reward on offer from the FTSE 100 may more than adequately compensate investors at a time when risks facing the global economy continue to be high.

Tax efficiency

Investing in FTSE 100 shares through a Stocks and Shares ISA is very tax efficient. Up to £20k can be invested per tax year, and all amounts held in an ISA (and gains made on the investment) are not subject to tax. This could significantly reduce your tax bill, not only in the next 12 months, but also in the long run. That’s especially the case since the annual tax-free dividend allowance if your shares are held outside of an ISA is only £2k, which could lead to many retirees paying dividend tax when relying on a nest egg to fund their living expenses in older age.

As such, opening a Stocks and Shares ISA and buying a diverse range of FTSE 100 shares could be a sound move. The index’s low valuations and relative appeal could mean that it offers a favourable outlook in 2020.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.