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3 reasons why I’d invest £500 per month in a Stocks and Shares ISA in 2020

Investing regularly in a Stocks and Shares ISA in 2020 could improve your long-term financial prospects. With there being numerous buying opportunities available at the present time, it may enable you to capitalise on favourable risk/reward opportunities in a tax-efficient manner.

Furthermore, investing regularly could allow you to take advantage of potential short-term declines in the stock market at a time when there are numerous risks facing the world economy. As such, now could be the right time to start investing £500, or any other amount, on a monthly basis in equities.

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Buying opportunities

While the FTSE 100 may have delivered a total return of 16% in 2019, it continues to offer good value for money. For example, it has a dividend yield of around 4.3% at the present time. This is higher than its long-term average and suggests that it offers a wide margin of safety.

Furthermore, many of the FTSE 100’s members currently trade on favourable valuations. Sectors such as retail and banking have been cheap for some time, and history shows that buying high-quality stocks at low prices can lead to high returns in the long run.

As such, capitalising on favourable valuations across the FTSE 350 could be a sound move. A simple means of achieving this goal is to set up a regular investment each month that enables you to gradually build a portfolio of shares that is capable of providing a nest egg in the long run.

Risk factors

Although now could be the right time to buy a range of stocks, a variety of risks facing the world economy means that short-term volatility could be high. For example, Brexit, geopolitical risks in the Middle East and a global trade war could cause share prices to experience a period of uncertainty during 2020.

By investing regularly you may be able to take advantage of short-term challenges to buy companies while they offer wide margins of safety. Although this may not feel like a logical response to falling share prices, history shows that indexes such as the FTSE 100 have always recovered from their downward moves to post higher highs.

Tax efficiency

A Stocks and Shares ISA is a simple means of investing tax efficiently. It means that an investor can avoid capital gains, income and dividend tax on the investments they hold within their ISA. In the long run, this can significantly reduce your tax bill – especially if you rely on your portfolio for an income at a time when the dividend allowance is just £2,000 per year.

The low cost and simplicity of a Stocks and Shares ISA means that it is a straightforward means to maximise your net returns. As such, now could be a good time to open one and start investing.

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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.