The recent market crash has caused many ISA investors to become downbeat over the prospects for UK shares. Therefore, they’re looking to other assets, such as gold, to generate a £1m+ portfolio in the long run.
However, now could be an opportune moment to buy undervalued UK stocks. Due to their low valuations and recovery potential, they could offer high returns in the long run. In fact, the chances of making a million from the stock market may now be higher than they have been in recent years.
An illogical stock market
The stock market crash highlights the irrationality of investors. Many UK shares are currently priced at lower levels than they have been for many years. However, investors are less keen to buy them now than they were at the start of 2020, when they traded at higher prices. This is an illogical approach for long-term investors to take. Buying any asset at a lower price is likely to be a more profitable move than purchasing it at a higher price.
Furthermore, the stock market has an excellent track record of recovery from even its most challenging periods. It’s been able to post new record highs after each of its past bear markets. That’s no mean feat given that during some of them it traded over 50% down on its previous high. Therefore, investors who believe the stock market will recover over the long run should now be more positive about buying cheap stocks than expensive ones.
A quality focus after a market crash
Clearly, focusing your capital on weak businesses following the market crash may not be a sound means of making a million. They may experience financial difficulties in the coming months and years. Instead, buying high-quality businesses with sound balance sheets and the capacity to adapt to changing market conditions may be a better means of generating impressive returns.
Fortunately for investors, all of the information required to gauge the quality of a business is available free of charge online. For example, annual reports can provide guidance on the financial strength of a business. Meanwhile, recent updates can highlight its strategy changes in response to evolving operating conditions. Through building a portfolio of high-quality UK shares while they’re cheap, you could generate a surprisingly large nest egg in the long run.
Making a million
Clearly, it will take a sustained period of time to make a million after the 2020 market crash. However, the FTSE 100’s 8% annual return means an investment of £500 per month in an ISA could be worth over £1m within 35 years. Through buying stronger businesses at discounted prices though, you can speed-up that process. Potentially, you can earn a higher return than the wider stock market in the coming years.