Volatility within the stock market has become a common theme in the past few years. And FTSE 100 stocks haven’t escaped.
The economic environment within the UK has been pretty dire in the last decade or so.
Most recently, the pandemic, red-hot inflation and hiked interest rates have led to a downturn in the market. With the Bank of England set to continue hiking rates in the near term, we may also be set to see more volatility in the UK.
Many investors may shy away from buying stocks in times like this. But it should be the opposite. I think today is a great time to be snapping up cheap stocks.
And the FTSE 100 is an ideal place to start.
Undervalued UK
The last 10 years have seen the Footsie return around 15% which, when compared to the S&P 500’s impressive 160% return, is rather grim.
However, I’m not complaining. As with this I see value.
The average price-to-earnings ratio for the FTSE 100 is around 14, significantly lower than the S&P 500 (22). And while this doesn’t paint the full picture, it’s a solid indication that there’s value to be had with UK-listed shares.
Taking a page from famous investor Warren Buffett’s book, he pounces when opportunities arise, advocating that you should “be greedy when others are fearful”.
Long-term vision
With this said, a long-term approach is key. And seeing sizeable returns from investments isn’t an overnight process.
Investors often panic when they see the value of their investment falling. However, viewing it over a minimum period of 10 years allows short-term volatility to be ironed out.
The stock market has proven over and over again that playing the long game is the best way to reap rewards.
What should I buy?
So clearly now is a great time to buy some bargain stocks that I could hold in my portfolio for the years ahead. But where in the Footsie should I focus?
Picking the correct stocks to buy may sound easy on paper, but it’s not. And selecting quality companies with long-term growth potential can be difficult.
Luckily, the FTSE 100 is packed with businesses that fit this bill.
The key to maximising the potential of long-term gains is diversification. By doing so, the risk of investments being reliant on one company, or industry, is minimised.
The FTSE 100 is home to a host of industries, such as investment, insurance and housebuilding, so I’d look to spread my cash across those.
With rampant inflation, picking out stocks with above-average dividend yields to generate passive income doesn’t sound like too bad an idea either. In my portfolio, I hold Lloyds and Legal & General, which yield around 5.5% and 8.5% respectively, and both offer yields above the index’s average (3-4%).
If I had some spare cash, I think now presents a great opportunity to buy FTSE 100 stocks and hold them for the years ahead. I’m confident that with a long-term outlook and smart choices, I could capitalise on this once-in-a-decade opportunity.
