The FTSE 100 has experienced a hugely challenging period over recent weeks. During that time, it’s posted the third largest weekly decline in its history, and has slumped to its lowest level in around three and a half years.
Looking ahead, investor sentiment may continue to be weak in the short run. However, long-term investors may be able to capitalise on low valuations across a variety of FTSE 100 sectors to buy high-quality stocks while they trade on low valuations.
Through buying them in a Stocks and Shares ISA, you may be able to do so tax efficiently and improve your long-term financial future.
Risk aversion
Many investors may feel that buying stocks is too risky at present. After all, the FTSE 100 has experienced a highly volatile period which may continue over the coming weeks and months. This may cause many investors to adopt a cautious mindset, which leads them to hold cash and other less-risky assets.
While this may seem to be a sound move in the short run – especially if the stock market experiences a further decline – in the long term there may be a significant opportunity cost. In other words, the stock market has the potential to recover from its recent decline, and may produce high levels of profit for investors who are able to buy high-quality stocks while they trade on low valuations.
Margin of safety
Clearly, it’s sensible to seek stocks that offer a wide margin of safety. In other words, it may be prudent to purchase companies which trade at a level that’s below their intrinsic value.
That way, investors may have factored in a possible worsening outlook for the world economy, and new investors may be able to enjoy relatively high rewards in the long run.
Fortunately, a wide range of sectors currently appear to include companies that offer wide margins of safety. The FTSE 100’s decline seems to have negatively impacted the vast majority of the sectors in which its members operate.
As such, it may be possible for a long-term investor to build a diverse portfolio which can deliver impressive returns in the coming years.
Long-term focus
While it can be difficult to ignore short-term movements in the FTSE 100’s price level, doing so may enable you to look beyond the current challenges and risks facing the world economy.
Certainly, paper losses may be experienced in the short run. But, over the long term, undertaking a buy-and-hold strategy while the FTSE 100 offers good value for money is likely to be a sound strategy.
Therefore, buying FTSE 100 shares today in a Stocks and Shares ISA seems to be a worthwhile move. The index appears to offer good value for money and recovery potential – even though its short-term progress could be subject to exceptional levels of volatility.