Last year’s dramatic stock market rally has fizzled out, but I still think now is a great time to buy FTSE 100 shares inside a tax-free ISA. The index is up by a third since falling below 5,000 in March last year, but has bags more recovery potential.
At some point, I expect another leg of the stock market rally. The FTSE 100 has been in a holding position of around 6,700 for most of this year, but that won’t last forever. I think top shares should start growing strongly once we see a clear route out of the pandemic.
It’s not guaranteed, of course and I don’t know when that rally will come. Nobody does. Predicting where the stock market will go from one month to the next is a mug’s game. However, history shows that in the longer run, the trajectory is upwards.
I’m buying before the stock market rally
There’s no question that the Millennium has been a disappointment. The FTSE 100 spiked at 6,930 on 31 December 1999, and trades just below that level today. Don’t let that fool you into thinking nobody has made money in that time, though.
Even in the hugely unlikely event that investors bought every single stock they own on Millennium Eve, they will still have made a fat profit. If they’d reinvested all their dividends back into their portfolios for growth, they would have bought loads more stock at much cheaper valuations.
In practice, most people will have invested at much lower levels. For example, the FTSE 100 fell as low as 3,000 in March 2003, in the wake of the technology crash. That was a great buying opportunity. So was last year’s Covid crash, given the scale of the subsequent stock market rally.
I buy FTSE 100 stocks for the long term
I would still like to see the FTSE 100 power through 7,000, then 8,000, 9,000. Will that happen? Again, I don’t know. What I do know is that buying FTSE 100 shares is likely to make my money work much harder than if I stick to cash. I’m still 15 years away from retirement and over that time, I would hope the stock market would generate plenty of dividend income and capital growth, all of which would be tax-free inside an ISA.
I like buying shares in a stock market crash as then I can buy my favourite companies at bargain prices. I don’t only buy in a crash though. I think the best time to invest in shares is whenever I money to spare. Then I simply leave it there, and wait for the next stock market rally to lift its value. That doesn’t always happen with every share I buy as individual companies can struggle or fail. But with a diversified portfolio, I aim to protect myself from having too much of a weighting to individual stocks.
There are lots of exciting opportunities out there right now. At some point, lockdown has to ease, then people can go out and start spending again. I would rather buy shares before that happens, than afterwards. I always aim to buy and hold for the long term, so I can benefit from the next stock market rally, and the rally after that.
The post Stock market rally: here’s why I’m buying FTSE 100 shares in an ISA 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 2021