Buying and holding FTSE 100 shares in a Stocks and Shares ISA has been a profitable strategy over many years. It has enabled investors to take part in the index’s long-term growth to boost the size of their portfolio in a tax-efficient manner.
Although the recent stock market crash may dissuade some investors from buying shares due to ongoing risks facing the world economy, now could be an opportune moment to invest £2k, or any other amount, in stocks while they trade at low prices.
Buying and holding FTSE 100 shares
The FTSE 100’s recent decline may cause some investors to doubt the attractiveness of a buy-and-hold strategy. They may view the world economy’s challenging outlook as a reason to purchase other assets, or to try and time the market so they can avoid further short-term declines.
However, predicting the future performance of the stock market is exceptionally difficult. Although an investor may be able to foresee some risks facing the economy, translating that into a profitable strategy that works consistently is a difficult task. It may mean that investors end up missing out on the most attractive stock prices as they seek to avoid short-term risks that could send valuations lower in the near term.
As such, buying FTSE 100 stocks when they are trading at appealing prices, and holding them for the long run, could be a more effective plan. It could enable you to access the index’s high single-digit annual returns over the long run, and even outperform the market through purchasing high-quality companies when they are undervalued.
Stocks and Shares ISA
A Stocks and Shares ISA represents a simple and cost-effective means of buying and holding FTSE 100 shares. It offers tax efficiency, in terms of no tax being levied on amounts invested within it, and is also easy to open and administer. In fact, it can be opened quickly online, and its annual management costs are a similar amount to one trade.
Furthermore, withdrawals can be made at any time and without restriction. This could make it more attractive to FTSE 100 investors who may need access to their capital at some point before retirement. It may also mean that budgeting in retirement is easier. Unlike other accounts such as a SIPP, withdrawals from a Stocks and Shares ISA are tax-free.
Overcoming adversity
While the FTSE 100 could experience a period of significant uncertainty in the short run, using a Stocks and Shares ISA to implement a buy-and-hold strategy could be a shrewd move. It may not produce high returns in the short run due to the economy’s weak outlook. On a long-term basis, however, it is likely to continue to be a simple, but effective, means of generating high returns on your investment in high-quality businesses.
