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£5k to invest? I’d use the stock market crash to buy cheap FTSE 100 shares in an ISA

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Investing £5k, or indeed any other amount, in FTSE 100 shares after the recent market crash may not produce a profit over the short run. Yes, the index has experienced a rebound from its March lows. But its short-term performance is likely to be closely linked to economic data, as well as news regarding the coronavirus.

As such, it may be prudent to take a long-term view of the index’s prospects. On that basis, now could be the right time to buy a selection of FTSE 100 shares in an ISA while they offer good value for money.

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Cheap FTSE 100 shares

At any point in time there are likely to be a number of FTSE 100 shares that offer good value for money. They may, for example, be experiencing uncertain operating conditions. Or investors may be downbeat about the prospects for the wider sector.

However, at the present time much of the FTSE 100 appears to be undervalued. Therefore, investors have a large amount of choice regarding which companies they wish to buy. They could even build a diverse portfolio of stocks in a range of sectors that offers long-term recovery potential following the recent market crash.

Such opportunities have rarely been seen for investors. In fact, the last time so many FTSE 100 shares traded below their historic average valuations was probably during the global financial crisis. That occurred over a decade ago! The index has a history of rising after its bear markets. So now could be the right time to invest in a selection of large-cap shares ahead of a potential return to growth over the coming years.

Investing in an ISA

Investing in FTSE 100 stocks in a tax-efficient manner may not be at the forefront of your mind at the moment. However, over the long run, investing through a Stocks and Shares ISA could improve your overall returns. No capital gains, income or dividend tax is paid on amounts invested via an ISA. This could reduce your tax bill over the long run. That is especially important with government spending having increased dramatically of late. You see, higher taxes are seemingly inevitable to reduce overall debt.

Opening a Stocks and Shares ISA is a simple process that can be completed online in a matter of minutes. The low costs of administering an ISA are appealing — in many cases they are no more than the cost of a buy or sell trade in FTSE 100 shares. And they make it an accessible product for almost all investors.

The FTSE 100 appears to offer a rare buying opportunity due to an uncertain near-term economic outlook today. So now could be a worthwhile moment to buy large-cap shares in an ISA. It could improve your financial prospects over the long run, albeit with the potential for volatility in the short term.

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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.

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