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Wondering whether to invest in a stocks and shares ISA now? Or do you think it’s too risky considering the war in Iran?
Stock markets will always be volatile. However, they always bounce back from short-term setbacks. We have already had three this decade: the pandemic, the energy shock in Ukraine and tariffs in the US. Each time, the stock fell, but quickly recovered. Investors who bought the dip were handsomely rewarded. So are we looking for another shopping opportunity? I think so.
A great time to go bargain hunting
Over the last decade, stocks and shares ISAs have averaged an average return of 9.5% per year, according to research from Investing Insiders. What about the Medium Cash ISA? Returns averaged just 4% per year. What does this mean in pounds and pence?
Nine years ago, on April 6, 2017, the ISA contribution limit was increased to £20,000. Let’s say an ISA investor puts aside a lump sum of £18,750 this month.
Now let’s assume they had an average annual total return on stocks of 9.5%. Today their money would be worth £42,435. If they had received 4% from the admittedly less risky Cash ISA, they would have had just £26,687. That’s a huge difference in performance, and one that will widen the longer they invest. This shows that taking a little more risk can be much more rewarding.
Look how far this fate has fallen!
Today I see a lot FTSE100 shares are trading at tempting valuations. In the last three months, six consecutive months have collapsed by more than 20%. One dropped more than 30%. I think this kind of volatility is a buying opportunity.
| Warehouse | 3 months | 1 year | 5 years |
| Group 3i | -20.1% | -37.3% | 112.5% |
| Reckitt Benckiser | -20.7% | 2.1% | -28.3% |
| Persimmon | -20.1% | -11.2% | -65.1% |
| Melrose | -21.2% | 20.9% | 2.5% |
| International Babcock | -22.2% | 42.4% | 277.2% |
| Barratt Redrow (LSE: BTRW) | -32.3% | -43.4% | -67.2% |
Construction company Barratt Redrow has lost 32.3% in just three months. As my table shows, it has been struggling for some time now, down 67.2% in five years. Why did such an impact occur?
The housing sector has been affected across the board. Rival Persimmon is down 65.1% in five years. High interest rates, affordability issues and the closure of the Help to Buy scheme in 2023 have reduced demand. Inflation also raised labor and material costs, and the wall covering fire safety scandal resulted in hundreds of millions in damages.
This year, hopes for further interest rate cuts have been postponed by a potential oil price shock. So should investors pull out? I don’t think so. Currently, I feel that all of these challenges should be factored into the price. Barratt Redrow invests on a modest forward price-to-earnings ratio of just 10.2. Moreover, the company’s shares are forecast to achieve a record rate of return of 5.67% this year, and in 2027 they will escalate above 6%.
Of course, dividends are not guaranteed. As the UK economy slows, the housing market may struggle for some time. I will be watching his progress like a hawk. However, from a long-term perspective, I believe construction companies like Barratt Redrow appear to be one of the most attractive FTSE 100 income and growth opportunities worth considering today if investors are ready to take on the challenge.
