The stock market crash of 2020 has shown few signs of easing up. Huge one-day gains are soon followed by yet another plummet in share prices. You’d be forgiven for wondering why anyone would want to invest in a Stocks and Shares ISA this April.
However, as the stock market crash continues, I think it represents a great opportunity to buy bargain shares in quality FTSE 100 companies inside an ISA.
Stocks and Shares ISA vs. Cash ISA
With the end of the tax year almost upon us, it’s time to start thinking about next year’s ISA of choice. This year, I’m sticking with a Stocks and Shares ISA over a simple Cash ISA.
Atrocious Cash ISA rates are the main factor behind my decision. To illustrate, the majority of companies I found providing Cash ISAs offer a maximum savings rate of around 1.3%.
A figure that pitiful is not even enough to beat the government’s target inflation rate of 2%. This means that, in real terms, your money is losing its purchasing power.
To make your money work harder, I think the best option remains to invest with a Stocks and Shares ISA.
What’s more, the freedom that comes with choosing your investments inside a Stocks and Shares ISA cannot compare to simply locking your money away in a Cash ISA.
Investing in FTSE 100 companies
With that in mind, you may be wondering where you should direct your investments to maximise returns.
While nobody can answer that question for sure, my advice would be to construct a diverse portfolio made up of good-quality, reliable and proven FTSE 100 companies. Many excellent specimens can be picked up for a bargain at the moment.
The easiest way to do this is by investing in a FTSE 100 tracker fund. Such an investment usually takes the form of an ETF or an index fund. Both of these significantly reduce the time and effort required to select individual stocks.
Prefer to pick your own investments for your Stocks and Shares ISA? Then selecting individual companies listed in the FTSE 100, after careful research, is still a solid strategy.
Think of reputable companies such as BAE Systems, GlaxoSmithKline, or Unilever. Willing to ramp up the risk? Consider struggling airline stocks such as easyJet, notorious for their volatility.
Remember, the Fool UK website offers an abundance of trustworthy analysis of FTSE 350 companies.
In it for the long term
Investing in quality companies inside a Stocks and Shares ISA creates a solid building-block for any portfolio. From there, you can look to expand your investing horizon and consider riskier small-cap stocks, which tend to have prospects of higher returns.
A long-term strategy allows you to ride through the peaks and troughs of the market unscathed. Additionally, reinvesting dividends adds fuel to the fire as the compounding process takes place over time.
The added benefit of achieving all of this in a tax-free manner makes investing in a Stocks and Shares ISA all the more appealing.
What’s more, many FTSE 100 companies are trading on dirt-cheap valuations at the moment. With that in mind, I’d pick up a few bargains this April and hold them in an ISA for as long as possible.
Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. 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.