The 2020 stock market crash may currently be viewed as a negative event by some long-term investors. It may have caused paper losses and concerns about a long-term recovery. And the economic and political outlook in parts of the world continues to be very uncertain.
However, it could prove to be a positive event over the coming years. It has caused many high-quality companies to trade at low prices. Over time, they could recover. In doing so, they may increase the chances of an investor being able to build a Stocks and Shares ISA valued at over £1m.
Stock market crash: buying opportunities
It is difficult to look beyond the short term following a stock market crash. Naturally, an investor’s focus is on their current holdings and the losses they may be making.
However, a market decline is not a one-off event. Investors are likely to experience many corrections, bear markets and periods of disappointment during their lifetimes. Indeed, indexes such as the FTSE 100 have experienced numerous bear markets in the past 35 years. They have included the 1987 crash, the dotcom bubble and the global financial crisis.
All of those events have seen a stock market crash followed by a subsequent recovery. As such, investors who can look ahead to the likely recovery in equity markets over the coming years may be able to more easily take advantage of the low prices currently available among many high-quality businesses. Over time, today’s undervalued shares could become the best performers as the economic outlook improves, investor sentiment strengthens and the stock market returns to previous record highs.
Building a £1m Stocks and Shares ISA
Of course, buying UK shares after the stock market crash is unlikely to produce a £1m Stocks and Shares ISA over a short period of time. For example, the stock market has returned around 8% per annum on a total return basis over recent decades. Assuming that rate of return on the maximum £20,000 annual ISA investment would mean it takes around 20 years to produce a £1m portfolio.
That length of time could realistically be reduced by purchasing undervalued shares after a market decline. They may offer wide margins of safety that provide significant scope for capital appreciation over the long run. This could mean that a Stocks and Shares ISA portfolio grows at a faster pace than the stock market’s past average returns.
As such, now could be an opportune moment to buy cheap UK shares after the stock market crash. Certainly, more paper losses cannot be ruled out in the short run. However, from a long-term perspective, buying high-quality assets at lower prices can have a positive impact on the eventual size of a Stocks and Shares ISA over the long term.
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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.
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