While the stock market has staged a strong recovery from its crash in March, there remains plenty of attractive opportunities for investors. As such, now could be a great time to snap up a range of cheap FTSE 100 shares. Doing so could be a profitable move over the long term.
Cheap FTSE 100 shares
Over the past 120 years, the UK stock market has experienced its fair share of crashes. However, on every occurrence, the market has staged a recovery. Sometimes it’s taken a few years. But, on other occasions, the market has recovered lost ground in just a few months. After making up lost ground, the market has always gone on to print new highs.
As such, buying cheap FTSE 100 shares today while they trade at low valuations could be a profitable move for the long run.
Clearly, the global economy continues to face some very severe risks. These include a second wave of coronavirus, and an economic downturn caused by the outbreak. Still, economic stimulus measures seem to have stabilised the financial markets, and this should help companies weather the storm. Some businesses could even come out of the crisis in a stronger position.
Indeed, the crisis has only accelerated the technology revolution, and some companies are generating huge profits as more businesses demand online connectivity.
The best cheap FTSE 100 shares to buy are those that might benefit from these trends. Businesses with high returns on invested capital, strong balance sheets, and good track records of returning excess cash to investors.
Due to the uncertainty facing the global economy, these companies might not generate attractive returns in the short term. But, as the economy recovers from its slump, these businesses should be able to use their competitive advantages to lead the recovery.
Tax benefits
Buying cheap FTSE 100 shares via a Stocks and Shares ISA also comes with substantial tax benefits. Any income or capital gains profits earned on investments held within ISA wrappers don’t attract any additional tax.
This means these products are perfect for buying cheap FTSE 100 stocks that may generate substantial capital gains in the years ahead.
Unlike other products, such as LISAs and SIPPs, Stocks and Shares ISAs also allow investors to access their money whenever they want. There’s no penalty for taking your money out. So you can dip into these funds in an emergency.
While the total contribution allotted is £20,000 a year, some providers offer so-called flexible ISAs. These allow investors unlimited deposits and withdrawals as long as the total doesn’t breach £20,000 a year.
The bottom line
So, overall, while the outlook for the global economy and the stock market may seem uncertain, the market’s track record of recovering from previous setbacks indicates that buying cheap FTSE 100 shares today could be a sensible long-term investment strategy.
Importantly, it may also help increase the size of your financial nest egg in the coming years.
