The FTSE 100 has experienced a number of market crashes since its inception in 1984. However, they haven’t happened all that frequently. As such, investors who’ve purchased high-quality stocks when they traded at low prices have generally recorded strong returns in the index’s subsequent recoveries.
While the FTSE 100’s price level could move lower in the short run, now could prove to be one of the most attractive buying opportunities for long-term investors since the index’s inception. Through focusing on strong businesses and holding them in an ISA, you could significantly improve your financial prospects over the coming years.
During the FTSE 100’s 36-year history, it’s experienced only a handful of bear markets. These include the 1987 crash, the bursting of the tech bubble, the financial crisis, and the recent market crash caused by coronavirus.
Within those bear markets, the prospects for the index appeared to be extremely downbeat. In fact, at times during FTSE 100 bear markets, it can be exceptionally difficult to see how the prospects for the economy will ever improve.
However, the common thread that links all of them is the fact the index has always recovered. Its price level may move lower in the short run if the economy’s outlook deteriorates further. But, over the long run, the FTSE 100 is very likely to experience a recovery. After all, it has done in previous bear markets.
Buying stocks during a bear market can be tough. It may cause losses over the near term. That, invariably, leads to investors experiencing fear and worry about their holdings.
However, if you can buy financially-sound businesses with long-term recovery potential at attractive prices, it doesn’t matter to a large extent how they perform in the short run. For example, if you’re seeking to build a retirement nest egg through your ISA, you’re likely to have sufficient time for the FTSE 100 to recover. Even from its very worst bear markets.
Therefore, taking advantage of the FTSE 100’s current low price level, as well as its recovery potential, could prove to be a worthwhile move. Investors who bought during previous bear markets are likely to have made gains in the following years. So the performance of the FTSE 100 in the coming years could be relatively impressive.
Investing in FTSE 100 shares can be done at low cost and with great simplicity through a Stocks and Shares ISA. They offer greater flexibility than other financial products, such as a SIPP. That’s because withdrawals can be made without penalty at any time.
With ISAs also being tax-efficient, they may also allow you to experience strong net returns over the coming years. Especially if you’re buying and holding a selection of cheap FTSE 100 shares.
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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.