A stock market recovery would be likely to have a very positive impact on the long-term performance of a Stocks and Shares ISA.
Of course, not all UK shares would necessarily rise at a fast pace in a new bull market after the stock market crash. However, a diverse portfolio of FTSE 100 and FTSE 250 shares could produce impressive returns. Certainly as valuations rise and investor sentiment becomes more bullish.
As such, there may be buying opportunities available today. Many stocks haven’t yet recovered from the 2020 stock market crash. This could mean there are opportunities to build a £1m ISA as the prospects for the stock market gradually improve.
A mixed outlook for UK shares?
Clearly, the short-term outlook for Stocks and Shares ISA investors continues to be relatively uncertain. Risks such as Brexit and the ongoing pandemic may mean that investor sentiment is volatile, as company performance may be negatively impacted by further economic challenges.
However, over the long run, a stock market recovery after the 2020 market crash seems to be very likely. After all, the track records of indexes such as the FTSE 100 and FTSE 250 have shown they’ve always recovered following their various declines. Over time, the economy’s performance is likely to improve. That means company profitability is set to respond positively to stronger operating conditions, and investor sentiment is likely to become more optimistic.
Buying opportunities within Stocks and Shares ISAs
Therefore, now may prove to be a rare opportunity to add UK shares to a Stocks and Shares ISA. In many cases, FTSE 100 and FTSE 250 shares trade at low prices following the stock market crash. Their valuations may not factor in their potential to survive a period of weak economic performance, as well as their capacity to benefit from a likely stock market recovery.
Certainly, there have been similar opportunities in the past. However, bear markets and their subsequent recoveries have generally not occurred frequently. Therefore, buying a diverse range of stocks prior to a sustained bull market taking place could prove to be a rare opportunity to make market-beating returns.
Making a million
Even if a Stocks and Shares ISA generates a similar return to the stock market’s long-term average, it could produce a £1m valuation over the long run. For example, investing £100,000 today at an 8% annual return for 30 years could lead to a £1m portfolio value. Similarly, investing £750 per month for 30 years at an 8% return would also mean an ISA portfolio valuation of over a million.
However, through purchasing cheap UK shares prior to a stock market recovery, it may be possible to earn higher returns over the long run. This may increase the chances of an ISA being worth in excess of £1m over the coming years.
The post Stock market recovery: a once-in-a-lifetime chance to build a £1m Stocks and Shares 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 2020