The performance of UK shares over the last year may have dissuaded many investors from buying them. Their volatile performance, as well as indexes such as the FTSE 100 still being down on their pre-coronavirus levels, may mean some investors look elsewhere when deciding which assets to hold.
Despite this, the long-term prospects for the UK stock market continue to be upbeat. It has a long track record of growth, which could make it a more attractive option than assets such as cash, buy-to-let properties and Premium Bonds.
As such, now could be the right time to use a tax-efficient account such as a Stocks and Shares ISA to capitalise on low valuations present across the stock market.
Investing in UK shares to generate high returns
The past performance of UK shares shows they’ve consistently produced high returns over a long time period. For example, the FTSE 250 has returned 9% per annum on a total return basis over the last 20 years. During this time it’s experienced numerous declines. But investors who’ve used a simple buy-and-hold strategy are likely to have outperformed most other mainstream assets.
Now could be an opportune moment to buy a range of FTSE 350 shares. In many cases, they’ve not yet recovered from the 2020 market crash. This suggests they may offer good value for money. A long-term economic recovery could boost their financial performances and allow them to command higher share prices.
The relative appeal of stocks
While UK shares are likely to be more volatile than other assets, their return prospects could make them much more appealing. For example, cash and Premium Bonds are unlikely to produce generous returns over the coming years as a result of low interest rates. The Bank of England may be cautious when it comes to monetary policy tightening. That’s because it has the potential to stifle an economic recovery.
Meanwhile, buy-to-let properties may offer more limited returns in future than they have done in the past. High house prices and tax changes could make the sector less attractive to investors. Meanwhile, an economic slowdown may curb demand among first-time buyers. This may result in a more challenging period for investors in the sector.
Investing in a Stocks and Shares ISA
A simple and low-cost means of capitalising on low valuations among UK shares is through a Stocks and Shares ISA. No tax is levied on capital gains made within, or dividends received from, an ISA. This could equate to higher net returns versus a bog-standard sharedealing account.
Therefore, now could be the right time to open an ISA and start buying undervalued shares. Holding them over the long run may certainly produce significantly higher returns than are available from other popular assets.
