Since the stock market crash, UK shares have entered a new bull market. This is defined as a 20% rise from their low during the short-lived bear market that occurred in the first part of 2020.
Despite entering a new phase of growth, the outlook for many British shares continues to be relatively uncertain. As such, it’s possible to buy cheap stocks in a wide range of sectors.
They could deliver impressive returns over the long run. Therefore, now could be the right time to buy a wide range of them in a tax-efficient account such as an ISA.
A new bull market for UK shares
It may not feel as though UK shares have entered a new bull market. After all, the economic growth rate has been disappointing of late. Meanwhile, rising unemployment and heightened political risks could weigh on investor sentiment. They may even cause a second stock market crash in the coming months.
However, now could be an opportune moment to buy a number of high-quality shares while they trade at cheap prices. Weak investor sentiment towards the wider stock market means that, in many cases, company prospects and financial positions aren’t accurately reflected in their valuations. Furthermore, some sectors contain businesses with the financial strength to survive the short-term challenges they face and benefit from a subsequent recovery. Yet weak investor sentiment towards the industry means they trade at extremely low prices.
Buying cheap stocks today
Buying cheap UK shares at this point in the new bull market could be a sound move. It may enable you to benefit from a likely improvement in investor sentiment over the coming years. Every previous bear market has eventually been followed by rising stock prices that have lifted indexes such as the FTSE 100 and FTSE 250 to new record highs. Sometimes this has taken many years to achieve. But long-term investors are likely to have sufficient time to enjoy the benefits of a rising stock market.
Of course, some British shares will fail to deliver strong capital growth in the coming years. They may face difficult operating conditions for a prolonged period of time. Therefore, it’s crucial to diversify across a range of sectors. Doing so also enables you to benefit more fully from the stock market’s recovery, in terms of accessing a wider range of opportunities.
A Stocks and Shares ISA
Buying UK shares in a tax-efficient account such as a Stocks and Shares ISA may help you to maximise your returns in the new bull market. No tax is levied on amounts invested in an ISA, nor is it paid on withdrawals. This could improve your return profile and lead to greater financial freedom in the coming years as the stock market’s recovery from its recent crash takes hold.
The post Stock market crash: I’d buy cheap UK shares in an ISA to capitalise on the new bull market 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