Deciding to invest money in UK shares after the stock market crash may seem very risky. Certainly, in the short run, there’s the potential for share prices to fall further as a result of political uncertainty and a weak economic outlook.
However, on a long-term basis, it could prove to be a sound move. The FTSE 100 and FTSE 250 may offer higher return prospects over the long run than other assets. Furthermore, many high-quality companies seem to be trading on low valuations.
As such, now could be the right time to start investing regularly in British shares through a tax-efficient account such as an ISA.
Long-term prospects for UK shares after the stock market crash
Many UK shares face an uncertain period following the stock market crash. A weak economic outlook that looks set to be prolonged by the ongoing coronavirus pandemic could mean that many FTSE 100 and FTSE 250 companies face tough operating conditions.
However, over the long run, they’ve the potential to deliver sound recoveries. After all, the stock market has always recovered to post new record highs following every one of its previous bear markets. Therefore, buying UK shares now on a long-term view could prove to be a sound move.
Moreover, the potential for a second stock market crash may mean there are further buying opportunities ahead. Those investing on a regular basis, such as each month, could stand to benefit from falling stock prices in the short run. They may provide greater margins of safety and greater capital appreciation potential over the long run.
The relative appeal of FTSE 100 and FTSE 250 shares
The stock market crash may have reminded investors of the potential volatility of UK shares. As such, other assets such as cash and bonds may seem more appealing. However, their long-term return prospects could significantly lag those of British shares.
For example, cash savings accounts are likely to offer next-to-no returns over the coming months, and even years. Low interest rates mean it’s likely to be difficult to beat inflation when holding cash. Similarly, investment-grade bonds are set to offer disappointing yields for the same reason. Buy-to-let investment and precious metals, such as gold, may have some appeal in the short run. But their high prices mean a portfolio of UK shares may offer better value for money.
As such, now could be the right time to start investing £100, or any other amount, each month in a selection of cheap UK shares after the stock market crash. Assuming an 8% return, which is in line with the stock market’s historic total return, a £100 monthly investment could be worth £230,000 over a 35-year timeframe.
While not all investors will have such a long time to generate returns, the example shows that regularly investing in UK shares can pay off in the long run.
The post Have £100 to invest each month? I’d buy cheap UK shares in an ISA after the stock market crash 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