The FTSE 100 is yet to fully recover from the market crash that wiped as much as a third of its value in the first quarter of the year. As such, a number of its incumbents appear to offer good value for money from a long-term investment perspective.
Through buying a selection of them, and holding on through what could prove to be a tough near-term outlook for the economy, investors may be able to generate surprisingly high returns. They may even be able to obtain an ISA valued at over £1m in the coming years.
Buying and holding FTSE 100 shares
One of the results of a market crash, and subsequent high volatility, is that investors in FTSE 100 stocks become short-term focused. In other words, they’re worried about their returns over a period of weeks, rather than years. This can mean they become risk averse. Or it can lead them to try and time the market to make a quick profit.
However, a short-term focus may not produce impressive returns. It’s difficult to time the market for profit, while other assets are unlikely to produce the level of returns offered by UK shares in the long run.
Therefore, it may be prudent to adopt a long-term approach when buying FTSE 100 stocks. The index’s past performance suggests this is a sound means of generating high returns. That’s because it’s always recovered from downturns to post new record highs. With many of its members still yet to fully recover from the recent market crash, there seems to be plenty of opportunities to benefit from a stock market recovery.
Becoming an ISA millionaire
The task of making a million from investing in the FTSE 100 is likely to be made easier when undertaken in a tax-efficient account, such as a Stocks and Shares ISA. The present annual dividend allowance of just £2,000 outside of an ISA, for example, means any investor seeking to build a seven-figure portfolio is likely to benefit from an ISA’s tax efficiency for a sustained period of time.
Of course, it’s still likely to take a long period of time to become an ISA millionaire through buying UK shares. However, purchasing undervalued shares after a market crash can help to quicken this process. Cheap stocks can produce surprisingly high returns as a recovery takes hold. And that may allow you to outperform the index’s long-term annual returns of around 8%.
There may yet be further volatility ahead for the FTSE 100 that causes paper losses in the short run. But, over the long run, there’s a high chance of generating strong capital returns. Therefore, buying cheap UK shares today in an ISA could be a profitable move. And one that may even lead to you becoming an ISA millionaire in the coming years.
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.