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FTSE 100 crash: 3 reasons why I’d buy cheap shares in an ISA today

The FTSE 100 crash has caused a wide range of stocks to trade on low valuations. As such, now could be the right time to capitalise on wide margins of safety on offer across the index. Such a strategy has produced excellent returns for many investors in the past.

With many other major asset classes offering low returns, and Stocks and Shares ISA being a tax-efficient means of capitalising on their prospects, now could be the right time to buy a diverse range of FTSE 100 shares for the long run.

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Low valuations across the FTSE 100

Buying shares when they are priced at low levels is a common strategy among investors. However, for shares to be priced at attractive levels, there must usually be some form of negative news that weighs on investor sentiment. This can mean there is a risk of paper losses over the short run.

Clearly, at the present time, coronavirus is the risk that is causing stock prices to be relatively low. And there is no guarantee that the FTSE 100 will recover from its current price level. But its track record suggests that there is a high chance of it doing so over the long run. As such, buying cheap shares now could enable you to capitalise on their recovery potential over the coming years.

In some cases, high-quality FTSE 100 shares are trading at prices that have not been seen since the global financial crisis. They may not remain at such levels indefinitely, which could make now the right time to buy them ahead of a potential rebound.

Relative potential

The FTSE 100 may face an uncertain near-term outlook, but its long-term prospects appear to be more attractive than those of other mainstream assets. For example, low interest rates look set to remain in place over the medium term as policymakers seek to support the economy. This could mean that the returns on cash and bonds lag inflation, leaving many investors with a loss of spending power.

Likewise, assets such as buy-to-let property could struggle to outperform the FTSE 100. They lack tax efficiency due to recent tax changes, while high house prices could be viewed as unappealing at a time when many people may be experiencing a lack of job security. This may lead to lower demand for property, which could cause a lack of capital growth for the asset class relative to stocks.

Tax efficiency

Opening a Stocks and Shares ISA is a simple and cost-effective means of investing in a tax-efficient manner. No capital gains tax or dividend tax is paid on amounts invested through an ISA, which makes it a relatively attractive means of capitalising on the FTSE 100’s low valuation.

As such, the net returns on FTSE 100 shares could prove to be highly attractive over the coming years. Now could be the right time to buy a diverse range of them to improve your financial future.

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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.