Investing £250 per month in FTSE 100 shares within an ISA may not seem to be enough to make a real difference to your retirement plans. After all, a sizeable nest egg is required to provide a passive income in older age – especially with rises in the State Pension potentially slowing over the coming years.
However, even modest regular investments in a tax-efficient account such as an ISA can really add up over the long run. Now could be the right time to start that process while many large-cap shares trade on low valuations.
FTSE 100 buying opportunities
Buying FTSE 100 shares at the present time may not lead to high returns over the coming months. Coronavirus cases continue to rise across the world, which could lead to a challenging period for the global economy.
However, many of the risks facing businesses appear to be factored into their share prices. Therefore, it’s currently possible to buy a range of high-quality companies while they trade on low valuations. In the past, this has allowed long-term investors to enjoy strong recoveries. That’s due to the stock market always producing new record highs after even its very worst bear markets.
Through buying FTSE 100 shares while they trade on low valuations, you can maximise your capital returns. This could have a significant positive impact on the size of your ISA when it comes to retirement.
Capitalising on short-term risks
If the FTSE 100 experiences a second market crash in the short run, regularly purchasing stocks could prove to be a sound strategy. It will enable you to take advantage of even lower stock prices, which could further enhance your long-term returns.
Furthermore, buying shares regularly can help to provide you with peace of mind during volatile periods for the stock market. In other words, if share prices fall, a regular purchaser of stocks is more likely to view it as an opportunity rather than a reason to worry about their portfolio’s performance. This can help you to maintain a disciplined approach to investing that leads to a larger retirement nest egg.
With interest rates currently low, house prices being high versus average incomes, and the price of gold having surged higher in 2020, the FTSE 100 could offer the most attractive investing opportunity available on a relative basis. Other assets may struggle to maintain its rate of return as investor sentiment and the prospects for the world economy improve over the coming years.
The index could offer the most potent risk/reward opportunity for investors who are seeking to gradually build a retirement portfolio so that they can potentially retire early. Therefore, now could be the right time to start investing regularly through a tax-efficient account such as an ISA.
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.