As the FTSE 100 crashes, some investors will be wondering whether they dare invest in a Stocks and Shares ISA right now. You have until midnight on Sunday 5 April to act, otherwise you will lose this year’s £20k allowance for good.
Many will be looking for supposedly safe havens instead, such as gold or cash. I can see why people are tempted to play safe right now. But I still believe the FTSE 100’s longer term prospects should make a Stocks and Shares ISA a more attractive home for your money.
Gold has performed well and now trades 26% higher than a year ago. Yet the gold price has been volatile lately, and could fall when we see signs of a recovery. I don’t like buying assets that are in demand and hitting multi-year highs. Why? Because of the risk of overpaying and getting caught out when sentiment shifts.
Use your Stocks and Shares ISA
Some will be tempted to take out a Cash ISA instead. If you are set on doing this, take one out now, before their interest rates fall in line with recent base rate cuts. You can still get around 1.3% on easy access, and 1.5% if you lock your money away for five years. However, in the longer run, I believe the FTSE 100 will put cash in the shade.
Where stock markets go next depends on what happens to the coronavirus. With the nation in lockdown, many companies have seen their revenues dry up. But others, including grocery giants Tesco and Ocado, are in the opposite position, and struggling to keep up with surging demand.
We do not know how long this could go on. The FTSE 100 is down almost a third, but could fall further. This is what stock markets do in moments of crisis. They do something else as well, and it’s important to remember that now.
They recover. Often faster than people think.
Stock market crash and recovery
I can’t tell you when this market crash will end, but history tells us it will at some point. Markets bounced back after Black Monday in 1987, as well as after the dotcom bubble and the financial crisis. Investors who bought when share prices were down and held on for the long term were rewarded for being brave enough to buy when others didn’t want to know.
To reduce risk you could shift money into a Stock and Shares ISA ahead of Sunday’s deadline to secure your allowance, then drip-feed money into the market over the weeks ahead. Buying a spread of blue-chip stocks still looks a better option to me right now than racing to the false security of safe havens like gold and cash.
Just be prepared to hold on for the long term, and the recovery will eventually come.