While the last eight months have been disappointing for a number of UK-listed shares, the reality is that it is not a major surprise. Stock markets have always moved in cycles, with bear markets following bull markets and vice-versa. As such, a 13% decline in the FTSE 100, for example, is something which takes place every so often, with long-term investors likely to see a number of such declines in their lifetime.
Falling share prices, of course, may present buying opportunities. The FTSE 100 and FTSE 250 have always been able to generate impressive recoveries after even the most brutal of recessions and market crashes. And with a stocks and shares ISA offering an increasingly attractive opportunity to maximise your returns over the long run, now could prove to be a good time to invest in high-quality stocks.
Tax advantages
While the capital paid into a stocks and shares ISA has already been subject to income tax at an individual’s relevant rate, no further tax is due. This means that even if an investor generates sky-high capital growth during their lifetime, they will not be required to pay capital gains tax. Similarly, dividends received from investments held within an ISA are not subject to dividend tax. And any amounts withdrawn from an ISA are also tax-free.
This may not only benefit an investor’s returns, the lack of tax payments could make it easier to work out how much capital is available for retirement. Various changes in the tax system surrounding pensions has taken place in recent years, and it is safe to assume that further adjustments will be made in future. The capital within an ISA, though, is available to spend at any time and without further deduction on the part of the investor. As such, it is a relatively simple means of planning for an individual’s long-term future, including retirement.
Buying opportunity
As mentioned, stock market cycles are nothing new, and the recent fall in the FTSE 100 is to be expected every so often. For many investors, stock market crashes bring fear and concerns about the value of their investments. Paper losses can be disappointing, after all. The reality, though, is that stock market cycles can work to an individual’s advantage. Most people are net buyers of shares throughout their lifetimes, and falling stock markets can mean that there are better value opportunities on offer.
When combined with the continued appeal of investing through a Stocks and Shares ISA, the recent decline in the stock market could provide a buying opportunity. Although further falls in the values of the FTSE 100 and FTSE 250 cannot be ruled out, history shows that the cyclicality of the stock market means that they are very likely to recover and post higher highs in the coming years.