FTSE 100 stocks are trading at low valuations today, but many investors will be sceptical. Although share prices have rebounded since the March stock market crash, the UK is heading into a recession. The next stage of the FTSE 100 recovery could take longer.
Despite that, today looks like a buying opportunity for long-term investors. If you’re looking to fund an early retirement, this could help you get there. Buying FTSE 100 shares in a tax-efficient manner through a Stocks and Shares ISA is still a great way to build wealth.
FTSE 100 recovery
Investors looking to buy cheap FTSE 100 shares must take a long-term view. The coming months are going to be bumpy, as the nation emerges blinking from its lockdown. Many companies will collapse. Millions could lose their jobs. We live in unprecedented times.
You have to balance these risks against the potential rewards of investing in the FTSE 100. History shows the best time to buy is typically the moment of maximum uncertainty. You will benefit when share prices bounce back.
Naturally, you cannot fund an early retirement by investing just £2k. Building a portfolio is a long-term project. The key is to invest whenever you have money to spare. If share prices are down, as they are now, all the better. Then invest more, next time you have funds at your disposal.
The earlier you start investing in the FTSE 100, the better. That way your money has longer to grow. Don’t expect to find the perfect moment to buy. If you hang around waiting for another crash, you could be hanging around for a long time.
The FTSE 100 may dip in the short run, but over the long term, investing in the index should boost your chances of building enough money to enjoy an early retirement.
Plan your retirement
You need to pick your shares carefully right now. Some FTSE 100 companies are still in shutdown. Many will suffer major losses. They will take time to recover. Some won’t.
During the crash, strong FTSE 100 companies were sold off with the weak. This is the ideal time to buy them, if you pick your targets carefully. Look for companies with strong balance sheets, reliable revenues, dominant market positions, low debt, and the ability to bounce back when the lockdown is over.
Many will also resume their dividends, helping you generate the income you need to enjoy retirement to the max.
Stocks and Shares ISA
I would always buy FTSE 100 shares using a Stocks and Shares ISA. There’s a choice of platforms, which are cheap, simple and flexible. Better still, you’ll pay no income tax or capital gains tax on your returns, for life.
The FTSE 100 will take time to recover. But history suggests it’ll get there. Then climb to new heights.
The following action plan could secure your retirement.
It’s ugly out there…
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Harvey Jones 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.