The recent FTSE 100 crash has caused a wide range of UK shares to trade at bargain valuations. This means any investor who’s seeking to build an early-retirement nest egg over the long run may now have numerous buying opportunities.
As such, this could be the right time to open a tax-efficient account such as a Stocks and Shares ISA. This could help you invest in a diverse range of businesses ahead of a likely market recovery.
FTSE 100 buying opportunities
The FTSE 100’s track record is filled with periods of high volatility. Investors were very uncertain about how the index would perform. Although buying UK shares during such periods hasn’t always produced quick returns, the index has always recovered from even its very worst bear markets to produce new record highs.
Therefore, now could be a good time to start buying a wide range of UK shares. In many cases, they offer wide margins of safety as a result of their challenging outlooks. This may present buying opportunities. Especially among those businesses that have sufficient financial strength to survive a challenging short-term period for the economy. Over time, they could deliver impressive returns as investor sentiment and their operating conditions gradually improve.
Planning for an early retirement
The FTSE 100 could provide the most attractive risk/reward investing opportunity for long-term investors at the present time. Other assets, such as cash and bonds, may outperform it in the short run should there be a second market crash. But, over the longer term, their return prospects are relatively unattractive. Low interest rates may also be required for a prolonged period of time. This could also mean that cash and bonds offer negative returns after inflation has been factored in.
Similarly, other assets, such as buy-to-let property, may offer lower returns than UK shares. Especially when you factor in their high valuations relative to stocks, as well as unfavourable tax treatment, compared to shares held within a Stocks and Shares ISA. Overall, this may mean investors who are seeking to build a nest egg are better off with a portfolio of stocks than owning several properties.
Timing the market
Of course, some investors may wish to wait for a more settled period for the FTSE 100 before buying a diverse range of UK shares. However, it’s exceptionally difficult to time the market on a consistent basis. For example, stock prices may have factored in risks, such as a second wave of coronavirus. Meanwhile, some threats, such as slower economic growth due to the US election result, may not materialise.
Therefore, now could be the right time to start buying undervalued UK shares. Their recovery potential within a tax-efficient account, such as an ISA, could help you to retire early.
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.