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Retirement savings: I’d buy cheap FTSE 100 shares today to become an ISA millionaire

The FTSE 100’s recent market crash may have hurt your attempts to become an ISA millionaire in the short run. However, its current price level could present a more attractive buying opportunity than was available at the start of 2020. As such, there may be a wider range of attractive businesses that have the potential to deliver strong capital growth in the coming years.

Clearly, making a million from the FTSE 100 is unlikely to be a fast process. But through focusing your capital on undervalued businesses with growth potential, you could generate index-beating returns that boost your retirement savings prospects.

FTSE 100 return potential

The FTSE 100 has an excellent track record of delivering high returns. For example, since its inception over 36 years ago, it has recorded an annualised total return of around 8%. Therefore, it has been a relatively sound means of growing your retirement savings.

For example, investing £450 per month since the FTSE 100’s inception in 1984 at an annual return of 8% would have produced a portfolio that is valued at over £1m today.

Clearly, many investors may not have been able to invest £450 per month, or may have had a shorter time period prior to their retirement. However, the example serves to show that the index has the capacity to deliver a seven-figure portfolio for investors who have many years left until they plan to retire.

Buying cheap stocks

Of course, beating the FTSE 100’s return over the long run to enhance your portfolio’s growth rate is possible. The index’s cyclicality suggests that buying when shares are cheap and potentially selling them when they are expensive is a sound strategy through which to capitalise on the index’s bull markets and bear markets. Indeed, value investors such as Warren Buffett have bought stocks at the lowest points in the stock market’s cycle, and have been able to generate relatively high returns.

At the present time, many FTSE 100 companies trade on low valuations that are significantly below their historic averages in some cases. Buying them today may not deliver high returns in the short run owing to the uncertain economic outlook. However, over the coming years the index is very likely to not only recover from its current lows, but go on to deliver new record highs.

Quality businesses

Buying cheap stocks can be a risky move, since in some cases they may be priced at low levels due to weak finances or a downbeat outlook. As such, it is crucial for investors to consider the quality of the companies they are buying.

Through assessing factors such as debt levels, cash flow and a company’s growth strategy, it is possible to unearth the most attractive stocks in the FTSE 100. Purchasing a diverse range of them while they are trading at low levels could produce high returns that boost your retirement savings and increase the chances of you obtaining a seven-figure portfolio.

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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.