Investing £100 a month in a Stocks and Shares ISA after the recent market crash may not sound like a worthwhile move to many investors. They may feel UK shares offer a risky short-term outlook, or that £100 per month is unlikely to make a significant impact on their retirement plans.
However, investing in UK shares now provides the opportunity for investors to benefit from a likely stock market recovery. Furthermore, investing over a long timeframe can produce surprisingly large returns that make a positive impact on your chances of retiring early.
Recovery after a stock market crash
While some UK shares have rebounded after the market crash, others continue to trade on low valuations. This is perhaps to be expected, since they face difficult operating conditions in some cases. As such, investors may experience paper losses in the short run. Especially if risks such as Brexit and a second wave of coronavirus impact negatively in investor sentiment.
However, over the long run, indexes such as the FTSE 100 and FTSE 250 offer recovery potential. They have solid track records of overcoming a variety of economic challenges to post new record highs. And, while they may not be all that popular among investors compared to other assets such as gold and Bitcoin at the present time, UK shares could offer high returns in the long run as the economy’s performance improves.
Furthermore, many UK shares are trading at cheap prices compared to their historic levels following the market crash. This may provide investors with the chance to buy them at a discount to their intrinsic value. The end result could be superior performance than the stock market’s past returns, which may boost your portfolio’s growth rate.
Investing regularly in a Stocks and Shares ISA
Starting to buy UK shares after the market crash could be a sound move over the long run. For example, investing £100 per month at an annualised return of 8% (which is the FTSE 100’s long-term return) would lead to a portfolio valued at around £310,000 over a 40-year period.
Certainly, not all investors will have 40 years to grow their portfolios. However, the example serves to show that even modest amounts invested regularly in the FTSE 100 and FTSE 250 can grow to surprisingly large amounts. Many UK shares are trading at bargain prices at the present time. That means there may well be scope to generate even higher returns over the coming years.
Therefore, now could be the right time to open a Stocks and Shares ISA to start buying cheap stocks after the market crash. Short-term gains may be disappointing due to ongoing risks facing the economy. However, long-term investors can certainly benefit from the stock market’s recovery potential to improve their retirement prospects.
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.