Investing money in UK shares after the stock market crash could be viewed as an unwise move by some investors. Understandably, they may feel that risks such as coronavirus and the US election could push stock prices lower in the coming months.
However, with many UK shares having high yields after the recent downturn, they appear to offer wide margins of safety. Therefore, when purchased in a Stocks and Shares ISA, they could offer impressive returns that improve your chances of making a million.
Buying the best UK dividend shares
Many UK dividend shares are trading at low prices after the stock market crash. Weak investor sentiment towards their sector or the wider stock market means that, in some cases, they have yields that are significantly higher than their historic averages. This could make them attractive buying opportunities, since their passive income potential may be significantly greater than other assets such as cash and bonds. Over time, rising demand for income shares could help to move their valuations higher.
Furthermore, many UK dividend shares have very affordable shareholder payouts. For example, their dividends may be easily covered by net profit. This could mean that they are able to maintain or even grow their shareholder payouts even if weak trading conditions negatively impact on their financial performances. This could make them even more attractive to long-term investors, and may help to push their prices higher.
Using a Stocks and Shares ISA
While a Stocks and Shares ISA will not protect your holdings from a second stock market crash, it could allow you to keep a larger proportion of your long-term gains. No tax is levied on amounts invested through an ISA, while withdrawals are also tax and penalty-free.
This could make an ISA the right vehicle through which to build a portfolio over the long run. Although taxes could change as the government seeks to pay for the cost of coronavirus, ISAs currently offer a relatively simple and cost-effective means of improving your net returns versus other sharedealing accounts. They could allow you to build a larger portfolio through minimal additional cost and effort.
Making a million after the stock market crash
Making a million from UK dividend shares after the stock market crash may seem unlikely right now. Risks are high. However, valuations are low. This could allow you to generate market-beating returns over the coming years.
Even if you match the FTSE 100’s 8% annual total return, a £100,000 investment today could be worth £1m within 30 years. As such, investing in the stock market could be a sound means to grow your wealth. The recent downturn could provide greater opportunity through which to obtain a seven-figure portfolio in the coming years.
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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.
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