Many investors were left spooked after the stock market crash caused share prices to plummet across the board. Since then, global stocks have risen sharply, but many fear another market pullback could be imminent. While asset prices look set to remain volatile in the short term, I think buying the best UK shares and holding them in an ISA could immensely boost your chances of making a million over the long term.
How to spot the best UK shares on the market today
When it comes to finding the right companies to invest in, there are certain key indicators to seek out. For example, I’m eyeing up companies that are continuing to thrive despite the impact of the global pandemic and bleak economic conditions. Admittedly, there’s no guarantee that they’ll continue to succeed over the long term. Nonetheless, it certainly underscores the resilience of the underlying business.
What’s more, I’m inclined to focus on companies that are situated within sectors that have growth potential. In other words, industries that look set to be profitable over the long term. That way, the effects of short-term volatility are mitigated, and investors can focus on the stocks that look set to deliver the strongest return on capital. In my view, many UK companies with explosive growth potential can be found operating in the technology, healthcare and e-commerce industries.
The importance of a Stocks and Shares ISA
When you want to buy a selection of the best UK shares available on the market, it’s important to hold your investments in an ISA. This is especially the case for those looking to achieve a tidy return by investing over the long term.
The advantages of holding your investments in a Stocks and Shares ISA are second to none. You’ll benefit from no tax on your profits, interest earned on bonds or dividend income. Essentially, an ISA works as a tax wrapper, which enables you to hold on to more of your gains. That’s doubly important for those aiming to make a million in the stock market.
Building a six-figure portfolio
In order to build serious amounts of capital through buying the best UK shares inside an ISA, you’ll need to unleash the wonders of compound returns. Key to achieving this is the amount of time you spend in the market. It’s simple: the longer you stay invested for, the more time your investments have to grow. This in turn fuels the compounding process.
To illustrate, let’s say you invest £500 a month into a basket of diversified FTSE 100 shares. Assuming an annual return of 9% (the annualised historic return of the FTSE 250 index is even higher at around 12%), you’d have an investment pot worth £1,031,550 after 32 years!
With that in mind, I’d make the most of the buying opportunities a stock market crash brings. After all, it could be your once-in-a-lifetime chance to buy quality UK shares at discounted prices. Stay in it for the long term, and you may even achieve that six-figure portfolio.
Matthew Dumigan 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.