Investing money in FTSE 100 shares after the recent stock market rally could still be a shrewd move. The index continues to trade around 15% down on its record high. Therefore, there appears to be scope for further capital gains after its recent rise.
Of course, no gains can ever be taken for granted when it comes to investing money in shares. The stock market can fall heavily – as the 2020 stock market crash showed. It can also decline without any prior warning.
However, on a long-term view, the FTSE 100 has a long track record of growth. As such, these two shares could be worth buying in a diverse portfolio.
FTSE 100 shares to capitalise on a global economic recovery
Many FTSE 100 shares have international operations that could benefit from a global economic recovery. Among them is mining company Rio Tinto. Its financial performance is closely linked to the prospects for the world economy. So, as it’s forecast to return to strong growth in 2021 and 2022 as the end of the pandemic comes more into focus, operating conditions for the mining sector could improve.
Despite this prospect, Rio Tinto appears to offer good value for money at the present time. The company has a dividend yield of around 5.5%. This suggests it could offer a margin of safety. Clearly, no dividend is ever guaranteed. Especially from a cyclical industry such as the mining sector.
Similarly, the company’s performance could be impacted by unforeseen risks and circumstances that are difficult to accurately predict.
However, with a solid balance sheet and major investment programme, the company’s prospects could be relatively bright compared to other FTSE 100 shares. As such, it may offer sound total returns versus the wider index.
A growth opportunity in a stock market rally
Other FTSE 100 shares could benefit from a long-term stock market rally. For example, Taylor Wimpey may deliver improving sales and profit growth as a result of a stronger economic performance. It could drive improving consumer confidence that has a positive impact on demand for new homes.
Meanwhile, a shortage of supply may have a positive impact on the performance of housebuilders. Furthermore, low interest rates may help to make housing more affordable.
Clearly, risks such as affordability concerns and an uncertain economic outlook for the UK could weigh on the sector’s performance in future. Similarly, changes to the government’s Help to Buy scheme and stamp duty may cause Taylor Wimpey’s share price to be relatively volatile in the coming months, and even years.
But the company’s price-to-earnings (P/E) ratio is around 11. This suggests many of these factors may have already been priced in by investors. And that could mean there’s scope for strong capital gains in the coming years relative to other FTSE 100 shares.
