The 2020 stock market crash has meant that the FTSE 100 and FTSE 250 currently contain a wide range of cheap UK shares.
Certainly, they could experience further declines in the short run. The recent market rebound could run out of steam as political and economic risks remain high.
However, the long-term prospects for many British shares appear to be relatively positive. As such, they could offer impressive returns over the long run. And that could lead to a surprisingly large ISA retirement portfolio.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
The outlook for cheap UK shares after the stock market crash
The prospects for cheap UK shares may remain challenging in the coming months. A wide range of FTSE 100 and FTSE 250 sectors face weak operating conditions caused by the difficult economic outlook, as well as heightened political risks. As such, the prospect of a second stock market crash cannot be ruled out.
However, the long-term performance of British shares could be relatively positive. Many cheap stocks have valuations that may not accurately reflect their financial positions and competitive advantages. Therefore, investors may be underestimating their ability to survive short-term challenges and to adapt to a changing world economy. This may mean their valuations have scope to increase significantly over the long run.
Time horizon when investing money in FTSE 100 and FTSE 250 shares
The performance of cheap UK shares could prove to be dependent on the time period over which they’re held. For example, investing money in FTSE 100 and FTSE 250 shares today for a period of months may mean high volatility and paper losses for investors, due to elevated levels of risks.
However, their performance over the long run could be far more impressive. Indeed, both indexes have solid track records of making new record highs after bear markets as severe as the 1987 crash and the global financial crisis. Both of those events caused greater declines in index price levels than the 2020 stock market crash.
A long-term outlook to build an ISA retirement portfolio
As such, having a long time horizon may mean cheap UK shares are attractive at the present time. They could catalyse the performance of an ISA so an investor can enjoy a generous passive income in older age.
In fact, it may be possible to obtain an annual return that’s in excess of the stock market’s high single-digit historic rate. Doing so may produce a larger ISA portfolio in the long run – especially with a stock market recovery being likely in the coming years.
Therefore, now could be an opportune moment to use the 2020 stock market crash to buy cheap UK shares. They appear to offer wide margins of safety that may provide scope for capital appreciation as the stock market recovers after its recent crash.
