After crashing 30% in a month, now may not seem to be the right time to buy FTSE 100 shares. Due to the unprecedented nature of the coronavirus outbreak, further declines over the coming weeks cannot be ruled out. Therefore, things could realistically get worse before they improve.
However, history shows that they are very likely to improve over the long run. Many FTSE 100 stocks now offer wide margins of safety, so today could be a good time to invest £10k, or any other amount, in a diverse range of companies.
Over the coming years, the index’s recovery potential could significantly improve your financial prospects.
Short-term risks
The FTSE 100’s recent decline highlights the extent to which investors have become concerned about the outlook for the world economy. Restrictions on freedom of movement are in place in many countries. It means many sectors could experience extremely weak operating conditions that reduce the profitability of their incumbents.
This may lead to investors demanding even wider margins of safety from stocks than they currently offer, even after the FTSE 100’s 30% fall. Many stocks in the index appear to be dirt cheap at the present time. But there is a chance they may move lower in the near term should the economic outlook deteriorate further.
Recovery prospects
However, investors who have a long-term view could benefit from buying shares today. Stocks may decline in value in the short run, but in many cases they now offer exceptional long-term recovery potential. In a wide range of sectors, FTSE 100 stocks are now trading on valuations that are well below their historic averages. And in many cases, it appears as though investors have factored-in a worsening in their financial performances over a lengthy period.
The FTSE 100 has always been able to recover from its various bear markets in the past, so the chances of it doing likewise seem to be high. Therefore, buying a diverse range of shares today could prove to be a highly profitable move in the long run.
Investing opportunities
It may seem as though holding cash or buying lower-risk assets such as bonds is a good idea. That is especially so given the FTSE 100’s decline over the past month. However, their return prospects are really unattractive due to low interest rates. Similarly, a weak UK economy is unlikely to provide a positive catalyst to the housing market.
Buying financially sound FTSE 100 stocks while they offer low valuations seems to be the most logical means of investing your money today, I feel. This course of action may not produce high returns in the next 30 days. But it has the potential to positively impact on your financial situation over the coming years. For long-term investors, therefore, now seems to be an opportune moment to capitalise on the FTSE 100’s recent decline.
