Investing money in UK shares to build a £1m Stocks and Shares ISA may not sound like a solid move to some investors. After all, the FTSE 100 and FTSE 250 are both trading around 15% down this year as a result of the 2020 stock market crash.
However, the long-term prospects for a stock market recovery appear to be sound. Through buying high-quality companies at low prices in a diverse ISA portfolio, it’s possible to build a £1m ISA over the coming years.
Investing money in high-quality UK shares
Buying the best UK shares in a Stocks and Shares ISA may protect an investor to some extent from the economic challenges that prompted the 2020 stock market crash. The coronavirus pandemic is ongoing, while political risks such as Brexit are still in play. As such, buying FTSE 100 and FTSE 250 companies that have sound financial positions could be a shrewd move. They may be able to successfully overcome present economic risks, and even use them to improve their market positions.
The best stocks may also have wide economic moats. In other words, they could have a competitive advantage versus their peers. Therefore, as well as considering the strength of a company’s balance sheet when building a Stocks and Shares ISA, it could be worth assessing its market position relative to rivals. Companies with unique products or strong brand loyalty may fare better than other UK shares in a stock market recovery.
Buying cheap stocks in a Stocks and Shares ISA
As well as unearthing the best UK shares after the stock market crash, purchasing cheap stocks could be a means of maximising returns in a Stocks and Shares ISA. Although many FTSE 100 and FTSE 250 shares have rallied in recent months, a number of high-quality businesses continue to trade at cheap prices that undervalue their long-term growth prospects.
Through buying a diverse range of cheap stocks, it may be possible to build a portfolio that’s well-placed to benefit from a likely stock market recovery. Since the FTSE 100 and FTSE 250 have always bounced back from their previous declines, a long-term view of UK shares could enable an investor to maximise their returns in a stock market recovery.
Making a million
Of course, it’s likely to take many years to build a £1m Stocks and Shares ISA through buying UK shares. However, even if an investor earns the stock market’s past annual total returns of around 8% per year on a £20k yearly investment, they could achieve a seven-figure portfolio size within 21 years.
By purchasing high-quality stocks at cheap prices, the returns could be even higher. This may well reduce the amount of time it takes to build a £1m Stocks and Shares ISA after the 2020 stock 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.