After crashing by 32% in the depths of the sell-off, The FTSE 100 index has recovered around 25% of its value. But an impressive rise in global stocks has now left many investors in fear of a second major sell-off. Regardless of whether another crash is around the corner, I’d continue to buy cheap FTSE 100 shares in an ISA and hold them for the long term. Why? Because I believe it’s the best way to build capital in the long run.
Cheap FTSE 100 shares are everywhere
Glancing at the FTSE 100 index, one can’t help but think there’s still significant value on offer. Many well-established and reputable companies are trading far below their average historic valuations, further indicating a wide margin of safety. Think of companies such as Royal Dutch Shell, Aviva and Barclays, whose share prices have all fallen by over 26%.
As always, I don’t advocate buying stocks simply because their share prices have fallen. But rather, because they’ve fallen too much. As such, these companies and many others could presently be considerably undervalued.
Moreover, some of the FTSE 100’s top dividend shares are also trading on cheap valuations thanks to the sell-off. The advantage with these stocks is that they enable you to plough dividends back into your investments, fuelling the process of compounding. I’m thinking of companies such as British American Tobacco and GlaxoSmithKline that boast respective yields of 6.75% and 4.9%, and P/E ratios of 9.2 and 12.9.
Investing inside a Stocks and Shares ISA
The benefits of investing inside a Stocks and Shares ISA cannot be understated in my view. Once opened, you’ll receive three tax benefits, including no tax on profits, no tax on interest earned on bonds and no tax on dividend income. These taxes can have a serious impact on your portfolio once it reaches a certain amount.
You can open a Stocks and Shares ISA with numerous brokers online. It’s a simple process and can be done in a matter of minutes. Trust me, you’ll be glad you did it once you have a sizeable investment pot to your name!
How to make a million from the market crash
Finally, let me illustrate just how simple it actually is to make a million in the stock market. Thanks to the unmatched power of time combined with interest, you can turn a relatively small investment into a massive one.
For example, let’s say you invest £375 a month in a mixture of shares in your ISA. Additionally, you manage to achieve an annual return of 9%. After exactly 35 years, your S&S ISA would have a value of £1,017,357!
With that in mind, don’t miss out on the opportunity to buy cheap FTSE 100 shares in an ISA today. Hold them for the long term, and you can expect to realise some serious returns that should immensely boost your prospects of making a million.
Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Barclays. 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.