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Have £10k to invest in FTSE 100 stocks? I’d buy cheap shares in an ISA today to retire early

Buying FTSE 100 shares in an ISA today could be a means of taking advantage of low valuations available across many of the index’s sectors. Weak investor sentiment and an uncertain economic outlook could combine to provide buying opportunities that help you to retire early.

Of course, paper losses in the short run cannot be ruled out. But for investors with many years left until retirement, there is likely to be sufficient time for the index to recover to post new record highs that help to bring your retirement date a step closer. Therefore, investing £10k, or any other amount, today could be a profitable move.

Cheap FTSE 100 shares

Identifying cheap FTSE 100 shares is likely to be more challenging now than it has been for a number of years. The economy’s outlook is uncertain, and forecast earnings growth may therefore be of limited value. Likewise, asset prices could move lower in the short run should the global economy experience a difficult period.

However, a number of large-cap shares are currently trading significantly lower than the prices at which they started the year. In some cases, they continue to have valuations that are much lower than their long-term averages. This could mean that they offer good value for money. That is especially so when company has a track record of delivering profit growth over the long run.

Through buying high-quality businesses with strong competitive positions while they are cheap, it is possible to be a major beneficiary of the FTSE 100’s likely long-term recovery.

Time horizon

As mentioned, the FTSE 100 faces a number of risks that could lead to paper losses in the short run. This may be a concern for investors with a short time horizon, of course. But for those who have many years left until retirement, there is likely to be sufficient time for their ISAs to recover.

Previous bear markets have always been followed by a sustained bull market. Sometimes it has taken a matter of months for a recovery to previous highs. But in other cases such as after the financial crisis it has taken a number of years. Either way, buying stocks now while they are cheap positions your portfolio for a recovery that is very likely to take hold over the coming years.

ISA appeal

As such, now could be the right time to invest £10k, or any other amount, in FTSE 100 shares via your ISA. It provides a tax-efficient means of benefiting from the index’s long-term growth potential.

Although it may seem unlikely after the recent market crash, the index could produce high-single-digit returns in the coming years. It has done so in the past and could boost the size of your nest egg to help you to retire early. 

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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.