Buying crashing FTSE 100 shares before the prospects for the economy to improve could be seen as a risky move by many ISA investors. After all, the UK economy has contracted at an exceptionally fast pace of late, and there are no guarantees it’ll quickly recover over the coming months.
However, the valuations on offer across the index and its recovery potential could make it a more attractive investing opportunity than other assets, such as gold and Bitcoin. As such, now could be the right time to invest £10k, or any other amount, in large-cap shares in an ISA.
FTSE 100 risks and opportunities
The FTSE 100’s outlook includes significant risks, such as a continued rise in coronavirus cases, as well as political challenges, such as Brexit and the US election. Any of these uncertainties, as well as many others that are currently present, could cause the financial prospects for index members to deteriorate. They may also lead to weakening investor sentiment over the coming months.
However, the presence of several major risks could also mean the index offers investing opportunities. Many large-cap shares currently trade on low valuations due, in part, to the economy’s uncertain future. Historically, buying high-quality businesses when they offer wide margins of safety has been a sound means of generating high returns in the long run.
Therefore, building an ISA portfolio of stocks today may not necessarily produce strong levels of performance between now and the end of the year. However, for long-term FTSE 100 investors, today may represent a rare opportunity to access low valuations. These are likely to lead to higher returns over the coming years.
Building a portfolio
One of the simplest and most effective means of utilising the FTSE 100’s recovery prospects to boost your returns is through a Stocks and Shares ISA. It offers tax efficiency, as well as low costs, that can make a real difference to your overall returns over the long run.
Clearly, it may be tempting to include assets such as gold and Bitcoin in your portfolio due to their recent outperformance of the stock market. However, gold’s price could fail to maintain its recent momentum. That’s because investor sentiment towards riskier assets, such as equities, is likely to improve as the economic outlook strengthens.
Similarly, Bitcoin could face a more challenging future than its recent gains suggest. Competition from other virtual currencies and limited prospects for it to replace traditional currencies may hold back sentiment towards the cryptocurrency.
Therefore, with FTSE 100 valuations appearing to be very attractive at present, it may be an opportunity to obtain appealing risk/reward ratios relative to assets such as Bitcoin and gold. Doing so could catalyse your ISA’s returns and improve your long-term financial outlook.
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.