Starting to invest today through a Stocks and Shares ISA may not seem to be a great idea at first glance. After all, risks such as the spread of coronavirus, Brexit and political uncertainty in the US could combine to create difficult operating conditions for many global businesses.
As such, some investors may determine that now is the right time to avoid riskier assets such as FTSE 100 and FTSE 250 shares, and instead wait for calmer trading conditions.
However, with the stock market offering low valuations in many cases, and the returns available elsewhere being relatively low, now could be the right time to start taking advantage of the tax efficiency of a Stocks and Shares ISA.
Low valuations
The FTSE 100 and FTSE 250 both appear to offer good value for money at the present time. As mentioned, there are a number of risks facing the world economy, and they seem to have caused investors to demand wider margins of safety over the past few months. This could mean that it is possible for investors to purchase high-quality shares with strong long-term growth prospects at discounts to their intrinsic values.
Certainly, lower valuations could be ahead if further risks cause investor sentiment to worsen. But for investors who have a long time to wait before they cash in, the track record of both indexes suggests that their performances in the coming years are likely to be positive. Therefore, while paper losses cannot be ruled out in the short run, high returns appear to be likely over a longer period.
Relative appeal
Buying shares in a Stocks and Shares ISA could produce significantly higher returns than those that are available from other mainstream assets.
For example, low interest rates are expected to remain in place over the medium term. This may mean that cash savings fail to deliver above-inflation returns, while robust bond prices may mean that their yields also lag inflation in many cases. Property, meanwhile, is becoming less tax-efficient due to government policies such as an additional rate of stamp duty being charged on second homes.
As such, the high-single-digit annual returns reported by the FTSE 350 in the past may prove to be highly attractive compared to other opportunities that are available to investors.
Tax efficiency
While property may not be a tax-efficient investment, buying a range of FTSE 350 companies through a Stocks and Shares ISA continues to offer high net returns for investors. There is no tax charged on investment gains or withdrawals from a Stocks and Shares ISA, which means that your net returns could be very attractive over the coming years.
With it being easy and cost-effective to open a Stocks and Shares ISA, now could be the right time to start investing regularly in a range of large and mid-cap shares.
