The market crash may have caused some ISA investors to pause new investments in UK shares. They may decide that it is better to hold cash or other low-risk assets until the prospects for the stock market improve.
However, the best time to buy shares is often in the aftermath of a bear market. Low valuations and recovery potential mean that the long-term returns on offer could lead to surprisingly large portfolio valuations.
As such, now may be the right time to invest £500, or any other amount, per month in a diverse range of stocks. Doing so could improve your chances of making a million.
Buying shares after a market crash
The recent market crash has caused many stocks to trade on attractive valuations. Although in some cases they may be merited due to weak financial positions and uncertain outlooks, many companies are undervalued at least partly because of negative investor sentiment towards the stock market.
Of course, this is unsurprising, since further declines could be ahead following the recent market rebound. However, it provides an opportunity for ISA investors to purchase strong businesses at attractive prices. Over time, their valuations are likely to revert to historic averages as the world economy’s prospects improve and investor sentiment gains momentum.
Therefore, now could be the right time to purchase a wide range of UK shares. Certainly, a second market crash cannot be ruled out. But this could present even more enticing buying opportunities for long-term investors who purchase shares regularly.
Regular investing
With an uncertain future for shares that could include a second market crash, investing regularly in an ISA could be a sound strategy. It means that you are not seeking to find the bottom of the stock market’s downturn, but rather are aiming to gradually build a portfolio that can grow in the long run.
The past performance of indexes such as the FTSE 100 and FTSE 250 suggests that obtaining an annualised return of around 8% is achievable for long-term investors. That figure may, of course, be higher for those investors who can take advantage of low valuations caused by the recent decline in the stock market.
However, assuming an 8% annualised return on a £500 monthly ISA investment, you could obtain a portfolio valued at £1m within 35 years. Even though there are likely to be a number of occasions when a market crash is experienced in that time, by investing regularly you can take advantage of short-term declines in share prices, as well as their likely rise over the long term.
Clearly, not every investor will have £500 to invest per month. Equally, they may not have a 35-year timeframe to allow their portfolio to grow in size. However, the example serves to show that investing regularly in an ISA over the long term can lead to a surprisingly large portfolio.