The stock market crash has caused a wide range of UK shares to trade at low prices. Over the long run, they could produce impressive returns in a stock market recovery. Its likelihood of occurring may have increased in the minds of some investors following positive data on a coronavirus vaccine.
Of course, indexes such as the FTSE 100 and FTSE 250 have long track records of recovering from downturns to post new record highs. Through buying high-quality companies while they trade at low prices in a tax-efficient account such as a Stocks and Shares ISA, it’s possible to capitalise on their growth prospects.
Investing £1,000 in UK shares through an ISA
An ISA may be a sound means through which to invest £1,000 in UK shares to capitalise on a likely stock market recovery. It is a low-cost means of investing money in a tax-efficient manner. Over the long run, the capital gains tax and dividend tax that’s avoided from using an ISA may be surprisingly high.
Of course, the investments made within an ISA will have a major impact on its ultimate size. After the stock market crash, it may be tempting to purchase the cheapest FTSE 100 and FTSE 250 shares. However, focusing on the quality of a company, and paying a higher price if necessary than for other stocks, could pay off in the long run.
For example, a business with a better market position and a solid financial situation may be more likely to capitalise on improving growth trends as part of a stock market recovery. It may also become more popular among investors as sentiment improves.
Clearly, paying too much for UK shares could limit the scope for capital appreciation in the long run. However, it’s worth striking a balance between quality and price. This may provide a sound means of obtaining the most promising investments available in the FTSE 100 and FTSE 250.
Focusing on a long-term stock market recovery
Recent gains for many UK shares may mean investor expectations are high regarding the prospects for a stock market recovery. However, it was only until very recently that a second stock market crash seemed more likely.
Therefore, when investing £1,000, or any other amount, in FTSE 100 and FTSE 250 shares, managing short-term expectations may be crucial. There’s a realistic prospect of high volatility across the stock market in the short run. As such, having a long-term viewpoint on any company purchased may be key to generating high returns in the coming years.
Previous stock market recoveries have produced exceptional returns for a wide range of UK shares. Investors who’ve benefited from them the most have often been those individuals who’ve given their portfolios the time they need to deliver turnarounds. This may mean short-term difficulties in return for a full recovery from the 2020 stock market crash.
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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