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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.
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.
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.
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.