With the new tax year beginning today, holders of tax-efficient ISA products like the Stocks and Shares ISA have seen their annual contribution allowance refreshed. Individuals now have room to invest up to £20,000 in a range of assets like shares, trusts, and funds over the next year.
But investing in the market may be the last thing many are thinking of as global share prices collapse. The FTSE 100 has fallen almost 7% over the past five days, on fears that escalating trade wars will smash the global economy and hammer corporate profitability. On Friday, the Footsie posted its largest one-day drop since the Covid-19 pandemic erupted in 2020.
The stock market correction may have further to go as the full impact of trade tariffs becomes clearer. But this doesn’t necessarily mean I’m planning to sell everything and run for cover.
Indeed, I’ve continued to add to my own portfolio in recent hours.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Thinking long term
Investing in shares can be a hair-raising experience at times. Unlike people who hold their money in a Cash ISA, those who invest in a Stocks and Shares ISA can see the value of their portfolio plummet. And that’s never a nice experience.
So during volatile periods like this, it’s important to remember that, over the long term, having stock market exposure is still an excellent way to build wealth. That’s even after accounting for the sort of market downturns we’re currently seeing.
Take the FTSE 100, for instance. During the last 40 years, it’s soared 527.7% in value, providing a solid average annual return of 7.7%. That’s a better return than most other asset classes in that time, and especially that of low-yielding Cash ISAs.
In that time, it’s faced a plethora of crises, like a run on the pound, foreign wars, a banking sector meltdown, a eurozone debt crisis, Brexit, a pandemic, and more recently, the introduction of those thumping trade tariffs. And yet the FTSE’s still proved highly resilient.
Past performance isn’t always a reliable guide to future returns. But I’m confident that major stock indexes like this will continue to rise over the long term.
A top ISA buy?
As I say, I’ve continued to buy for my own portfolio in recent days. Stock markets are packed with brilliant bargains following recent weakness. Even companies in highly resilient sectors have plummeted amid the panic, proving excellent buying opportunities.
Coca-Cola Europacific Partners (LSE:CCEP) is a rock-solid share I’m considering buying soon. It trades on a forward price-to-earnings-to-growth (PEG) ratio of just 0.5.
Any reading below 1 indicates that a share is undervalued.
As a major global company, it won’t be immune to the impact of acclerating trade tariffs. Consumer spending may be affected in European and Asian markets, while production costs could also rise.
But on balance I expect earnings to remain broadly resilient. Its lack of exposure to the US, combined with the star power of brands like Coke, should see it hold up well. And over the long term, I expect it to deliver exceptional returns, driven by its substantial emerging market exposure and continuing innovation across its drinks ranges.
