Investing in FTSE 100 shares through a Stocks and Shares ISA may not seem to be a sound move at the present time. After all, the index has fallen around 1,000 points from its record high and could move lower as the risks from the spread of coronavirus intensify.
However, the index continues to offer long-term growth potential. Furthermore, many of its members now offer wide margins of safety. Therefore, now could be the right time to invest in a diverse range of large-cap shares through a Stocks and Shares ISA.
Long-term growth potential
Focusing on the long-term growth prospects for the FTSE 100 can be a challenging process while it is delivering continued falls. Investors may naturally look at the risk of loss, rather than focus on the potential to make gains from FTSE 100 shares.
However, at the present time, the index has a dividend yield of 4.8%. The only time it has been higher over the past 20 years was during the global financial crisis in 2008/09 when the outlook for many companies was far worse than it is today.
As such, the index appears to offer good value for money at the present time. This does not mean that it will suddenly deliver a successful turnaround and surge to new record highs. But it does mean that investors who have a long-term time horizon may be able to access undervalued stocks to generate strong returns in the coming years.
Although the past performance of the index is never perfectly replicated in the future, the track record of the FTSE 100 shows that it has always recovered from its challenges to post new highs.
For example, since inception it has faced crises such as the 1987 crash, the technology bubble bursting and the global financial crisis. It has also experienced the challenges associated with the SARS outbreak. It has successfully recovered from all of those difficulties and, while some of them have lasted for many months and caused significant paper losses, in the long run, investors have benefited from purchasing undervalued stocks.
Stocks and Shares ISA
With the returns from stocks held within a Stocks and Shares ISA being tax-free, it offers a simple and cost-effective means of capitalising on the FTSE 100’s long-term growth potential at the present time. And, with up to £20,000 allowed to be invested through an ISA each year, now could be a good time to use up this year’s allowance while the FTSE 100 appears to offer good value for money.
Buying stocks during a downturn is never an easy step to take. But over the long run, history shows that it can be an effective means of improving your portfolio’s risk/reward ratio and generating impressive total returns as the market recovers.
The post The FTSE 100 is falling! Here’s why I’d invest in a Stocks and Shares ISA today appeared first on The Motley Fool UK.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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