Have £5k to invest in an ISA? I’d buy UK shares despite the threat of stock market crash 2

Buying UK shares in an ISA could be a sound move, in my view. It may lead to long-term growth despite the prospect of a second stock market crash.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Some investors may avoid buying UK shares right now due to the potential for a second stock market crash. While this may mean they avoid an uncertain period for the FTSE 100 and FTSE 250, the prospects for other assets such as cash, bonds and buy-to-let property may be somewhat challenging over the long run.

Therefore, investing £5k, or any other amount, in British shares in an ISA could be a relatively sound move. It may improve your financial outlook to a greater extent versus investing money in other assets.

An uncertain near-term outlook for UK shares

The performance of UK shares could be disrupted by a second stock market crash over the coming months. Risks such as the US election, Brexit and coronavirus could cause investor sentiment to weaken dramatically over a short period of time.

However, there is no guarantee that a decline in share prices will occur in the short run. Certainly, the current recovery for the FTSE 100 and FTSE 250 will not remain in perpetuity. However, the past performance of British shares shows that they can be difficult to forecast in advance. Therefore, investors selling stocks may end up avoiding a market decline that does not materialise.

Worse still, selling UK shares leaves many investors with a lack of attractive options. The recent stock market crash has caused policymakers to reduce interest rates. Therefore, the returns available on cash and bonds are at extremely low levels. Meanwhile, rising house prices mean that there could be a lack of value available for buy-to-let investors. This may lead to disappointing returns over the coming years.

Investing money in an ISA

As such, UK shares may offer a relatively attractive investment opportunity at the present time. The threat of a second stock market crash means that there are numerous high-quality companies currently trading at low prices as a result of weak investor sentiment towards their sector, or the wider index. Over time, they could deliver impressive returns that improve your financial situation.

Moreover, the past performance of the stock market shows that it can deliver relatively high returns over the long run. For example, the FTSE 100 has recorded an 8% annual total return since inception. Over that time, it has experienced numerous bear markets and downturns. This suggests that even if there is a fall in British share prices over the coming months due to the aforementioned risks, long-term investors can experience strong growth due to their extended time horizon.

Therefore, now could be the right time to continue to invest in a range of UK shares. They could outperform other mainstream assets in the long run, albeit with the prospect of high volatility due to the threat of a second market crash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top S&P 500 growth shares to consider buying for a Stocks and Shares ISA in 2025

Edward Sheldon has picked out three S&P 500 stocks that he believes will provide attractive returns for investors in the…

Read more »

Growth Shares

Can the red hot Scottish Mortgage share price smash the FTSE 100 again in 2025?

The Scottish Mortgage share price moved substantially higher in 2024. Edward Sheldon expects further gains next year and in the…

Read more »

Inflation in newspapers
Investing Articles

2 inflation-resistant growth stocks to consider buying in 2025

Rising prices are back on the macroeconomic radar, meaning growth prospects are even more important for investors looking for stocks…

Read more »

Investing Articles

Why I’ll be avoiding BT shares like the plague in 2025

BT shares are currently around 23% below the average analyst price target for the stock. But Stephen Wright doesn’t see…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

5 Warren Buffett investing moves I’ll make in 2025

I’m planning to channel Warren Buffett in 2025. I won’t necessarily buy the same stocks as him, but I’ll track…

Read more »

Investing Articles

Here’s why 2025 could be make-or-break for this FTSE 100 stock

Diageo is renowned for having some of the strongest brands of any FTSE 100 company. But Stephen Wright thinks it’s…

Read more »

Investing Articles

1 massive Stocks and Shares ISA mistake to avoid in 2025!

Harvey Jones kept making the same investment mistake in 2024. Now he aims to put it right when buying companies…

Read more »

Value Shares

Can Lloyds shares double investors’ money in 2025?

Lloyds shares look dirt cheap today. But are they cheap enough to be able to double in price in 2025?…

Read more »