The FTSE 100’s recent market crash highlights how volatile the stock market can be. While further falls could be ahead over the coming weeks and months, the stock market could offer long-term recovery potential.
Many of the index’s members trade at valuations that are significantly lower than their historic averages. Buying them in a Stocks and Shares ISA today, and holding them over the long run, could increase your chances of making a million.
FTSE 100 recovery prospects
The FTSE 100 may have recorded a sharp fall in its price level since the start of the year, but its past performance is relatively impressive. Since inception, it has recorded an annualised total return of around 7%. However, its performance in the coming years could be even more attractive. That is because it is starting from a price level that suggests it is undervalued at the present time.
Across a wide range of industries, investors are pricing in a prolonged period of economic uncertainty. In some cases this may be deserved. Some industries do face highly challenging operating conditions. But the performance of some businesses may be relatively robust. And their valuations could be suffering from weak investor sentiment towards the wider stock market.
Since the FTSE 100 has always recovered from its variety of bear markets and downturns in the past to post new record highs, it looks likely to deliver the same outcome following its recent market crash. It has already started to move upwards in recent weeks. As such, its total returns in the coming years could be above its historic average, as many of its members currently trade at discounts to their intrinsic values.
Making a million
Of course, making a million from buying stocks is never an easy or quick process. However, it is possible to generate a seven-figure portfolio in the long run.
For example, assuming a 7% annual total return for the FTSE 100 over a 35-year time period would produce a £1m portfolio for someone who invests £600 per month. Clearly, not everyone can afford to invest that amount each month, but even a lesser amount could still produce a sizeable nest egg over the long run.
Moreover, with the FTSE 100 currently containing many stocks that appear to offer good value for money, its returns over the coming years could be in excess of the index’s historic 7% per annum. As such, you may be able to generate a £1m portfolio sooner than in the above example.
Stocks and Shares ISA
Investing through a Stocks and Shares ISA could further improve your chances of generating a seven-figure portfolio. Amounts invested through an ISA are tax-free, while withdrawals can be made at any time without paying any tax. This could make budgeting easier in retirement, and improve your sense of financial freedom over the long run.
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.