The stock market crash has left many UK shares trading on extremely low valuations. In some cases, they’re priced at levels that are significantly below their historic averages.
Although they could move lower in the short run, their long-term potential to deliver a strong recovery appears to be high.
As such, buying a range of undervalued British stocks today could be a sound means of improving your retirement prospects. They could outperform other assets such as gold and boost your financial outlook.
Buying cheap UK shares after the stock market crash
While some UK shares have rebounded after the stock market crash, many others continue to trade on exceptionally low valuations. They could prove to be excellent buying opportunities. These are businesses with solid balance sheets which are likely to survive a period of weak sales growth. They may also have a competitive advantage to benefit from a likely improvement in the economic outlook.
Investors who’ve bought high-quality shares after a market downturn have often been rewarded in the past. For example, purchasing stocks soon after the global financial crisis in 2008/09 enabled investors to benefit from a decade-long bull market. It’s been a similar story in other previous crises, with indexes such as the FTSE 100 and FTSE 250 having posted strong recoveries after periods of disappointing performances.
Focusing on the stock market
The stock market crash is likely to sway some investors towards less risky assets such as gold. This is understandable given the presence of risks such as the ongoing coronavirus pandemic and political uncertainty in the US and Europe.
However, buying gold after its recent price rise may not be as profitable as purchasing a wide range of UK shares. The precious metal currently trades close to its record high. This suggests that factors such as a weak global economic outlook and an extended period of low interest rates may account for in its price. Furthermore, with many British stocks currently trading at low prices, they may have greater scope to deliver capital growth as the world economic outlook improves.
Reducing risks
Clearly, the potential for a second stock market crash means that building a retirement nest egg requires consideration of potential risks. As such, diversifying across a range of businesses that operate in different sectors can help to spread your risk. It can also reduce your reliance on a small number of businesses to deliver growth.
Furthermore, through buying companies in a good positions to survive a potentially challenging economic period, you can further reduce risk. They may also benefit to the greatest extent from a likely economic recovery that improves your portfolio’s performance. Over time, they may produce a surprisingly large nest egg that helps you to retire early.
