The stock market crash may have caused some investors to become less optimistic about the prospect of doubling your money through buying UK shares. They may view the risks ahead, such as a second wave of coronavirus, as being reasons to avoid purchasing bargain stocks at the present time.
However, undervalued shares provide an opportunity to buy high-quality businesses at low prices. Over time, they could recover in many cases, and allow you to make a 100%+ return on your ISA portfolio over the long run.
Past performance Despite the recent market crash, the FTSE 100 has returned around 8% per annum since its inception in 1984 when dividends are included. This may not sound like an especially appealing return to some investors at a time when gold is surging higher and Bitcoin has doubled in price since its March low. However, when compounding is factored in, an 8% return means that your capital will double every nine years.
For example, if you had invested £1,000 when the FTSE 100 was formed in January 1984, you would now have a portfolio valued at over £16,000. During that time, the index has experienced a wide range of bear markets, corrections and downturns. However, it has always recovered to post new record highs. Through simply buying and holding UK shares, you could more than double your money over the long run.
Buying after a market crash The time it takes to double your money via UK shares may be shortened through buying after a market crash. This may sound counterintuitive at first, since risks are generally higher following a severe downturn for the stock market. However, those short-term risks mean that many UK shares trade at lower prices than their historic averages. Therefore, they have greater scope to deliver capital growth, which could lead to market-beating returns for investors who build a portfolio of cheap stocks.
Clearly, it is imperative to buy companies that can survive short-term challenges to benefit from a long-term recovery. Therefore, purchasing businesses with wide economic moats, solid balance sheets and sound growth strategies may be important to allow your portfolio to grow in size as the next sustained bull market commences.
ISA investing Furthermore, investing in UK shares through an ISA may be worthwhile after the recent market crash. A Stocks and Shares ISA provides tax efficiency that can lead to higher net returns versus investing through a bog-standard sharedealing account. Over time, avoiding capital gains tax and dividend tax could lead to a significantly higher portfolio value.
Therefore, now could be the right time to buy high-quality businesses in a Stocks and Shares ISA. Over time, they could double your money and significantly improve your financial prospects as the stock market gradually recovers from its recent downturn.
The post Stock market crash: I’d buy cheap UK shares in an ISA today to double your money appeared first on The Motley Fool UK.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020