Crashing UK shares could continue to be a feature of the investing landscape over the coming months. Risks, such as Brexit and coronavirus, have not receded over recent weeks, and could continue to hold back investor sentiment in the short run.
However, those risks could create buying opportunities for long-term investors. As such, now may be the right time to invest £3k, or any other amount, in undervalued stocks in a Stocks and Shares ISA. Over the long run, it could help you to retire early.
A long-term outlook
While risks are present for almost all UK shares in the short run, this shouldn’t be a major concern for long-term investors. The track record of the stock market shows that periods of high volatility are relatively common.
However, it’s always returned to a bull market following its bear markets, and posted new record highs when doing so. As such, the presence of risks and the potential for a market crash should not dissuade long-term investors from buying stocks.
In fact, those risks mean that many stocks now offer better value for money than they did at the start of the year. Certainly, they could yet fall further in price should there be a second market crash. But over the coming years the valuations of many FTSE 100 and FTSE 250 shares suggest they offer strong recovery potential.
Furthermore, the short-term performance of UK shares shouldn’t matter to long-term investors. For example, if you plan to retire in 20 years’ time, the performance of your ISA over the next few years is somewhat irrelevant. As long as the stocks held within your portfolio survive a period of economic difficulty, and go on to deliver high returns in the long run, then you’re likely to achieve the desired result of building a nest egg to provide a passive income in older age.
Starting to buy UK shares today
Clearly, buying crashing UK shares today is a tough task for any investor. Risks may dissuade even the most experienced investors from buying undervalued stocks due to the potential for paper losses in the short run. They may feel that it’s a better idea to hold cash or bonds, and await a period of stronger operating conditions for companies across a variety of sectors.
However, history shows the best times to buy FTSE 100 and FTSE 250 shares have been after a market crash. Through focusing your capital on those companies with solid balance sheets likely to survive the short run, and benefit from an economic recovery in the long run, you can build a surprisingly large portfolio.
Over time, it could help you to enjoy a greater level of financial freedom in older age. And to potentially retire earlier than previously planned.
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.