Investing £20k in my Stocks and Shares ISA could prove to be quite a profitable strategy in the long term. Beyond the tax benefits of using this special account, an investor like me is in the middle of a rare buying opportunity – even if it doesn’t seem like it.
The stock market has had quite a tantrum so far this year. But as most industry titans have shown resilience, the FTSE 100 is only down by around 8%. Yet smaller-cap indices like the FTSE 250 and FTSE AIM All-Share have suffered spectacular double-digit declines since the start of 2022.
Many UK shares are falling as rising inflation and interest rates dominate headlines. So, now might seem like a bad time to do some shopping. But as famous contrarian investor Baron Rothschild once said: “The time to buy is when there’s blood on the streets, even if the blood is your own”.
Investing via a Stocks and Shares ISA
To many, the threat of a looming recession shouldn’t be casually dismissed. Yet as a long-term investor, I have the luxury of being able to do just that. Providing the underlying businesses in my portfolio remain uncompromised, falling stock prices look like nothing but buying opportunities in my eyes.
Obviously, there are companies out there in serious trouble. After all, rising interest rates create massive problems for overleveraged enterprises. That’s especially true for those with restricted cash flow courtesy of pandemic disruptions.
But not every stock falls into this category. There are countless enterprises whose revenue streams are being impacted. Yet many have sufficient resources to weather the storm and continue executing their long-term strategies. That’s why the stock market has a perfect track record of recovering from every financial disaster since its inception in 1611.
In other words, given time, many of the UK shares being bashed into the ground today could deliver lucrative long-term returns thanks to the dirt-cheap valuations. What’s more, by using a Stocks and Shares ISA, these potential long-term gains are entirely protected from the taxman.
Understanding the risk
Investing in the stock market is never risk-free. And buying during a time of heightened volatility only amplifies this risk. At least in the short term.
With UK shares currently being moved by emotion rather than logic, prices may continue to tumble further, especially if more bad news emerges about the economy. As such, it’s impossible to say when the stock market recovery will begin.
Therefore, investing £20k in my Stocks and Shares ISA today as a lump sum may not be the best idea. Instead, if I had this capital at hand, I would slowly drip-feed it into high-quality businesses over several months. Why? Because if stocks fall further, then I can buy more at an even better price.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.