Some investors may avoid buying UK shares right now due to the potential for a second stock market crash. While this may mean they avoid an uncertain period for the FTSE 100 and FTSE 250, the prospects for other assets such as cash, bonds and buy-to-let property may be somewhat challenging over the long run.
Therefore, investing £5k, or any other amount, in British shares in an ISA could be a relatively sound move. It may improve your financial outlook to a greater extent versus investing money in other assets.
An uncertain near-term outlook for UK shares
The performance of UK shares could be disrupted by a second stock market crash over the coming months. Risks such as the US election, Brexit and coronavirus could cause investor sentiment to weaken dramatically over a short period of time.
However, there is no guarantee that a decline in share prices will occur in the short run. Certainly, the current recovery for the FTSE 100 and FTSE 250 will not remain in perpetuity. However, the past performance of British shares shows that they can be difficult to forecast in advance. Therefore, investors selling stocks may end up avoiding a market decline that does not materialise.
Worse still, selling UK shares leaves many investors with a lack of attractive options. The recent stock market crash has caused policymakers to reduce interest rates. Therefore, the returns available on cash and bonds are at extremely low levels. Meanwhile, rising house prices mean that there could be a lack of value available for buy-to-let investors. This may lead to disappointing returns over the coming years.
Investing money in an ISA
As such, UK shares may offer a relatively attractive investment opportunity at the present time. The threat of a second stock market crash means that there are numerous high-quality companies currently trading at low prices as a result of weak investor sentiment towards their sector, or the wider index. Over time, they could deliver impressive returns that improve your financial situation.
Moreover, the past performance of the stock market shows that it can deliver relatively high returns over the long run. For example, the FTSE 100 has recorded an 8% annual total return since inception. Over that time, it has experienced numerous bear markets and downturns. This suggests that even if there is a fall in British share prices over the coming months due to the aforementioned risks, long-term investors can experience strong growth due to their extended time horizon.
Therefore, now could be the right time to continue to invest in a range of UK shares. They could outperform other mainstream assets in the long run, albeit with the prospect of high volatility due to the threat of a second market crash.
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.