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Retirement savings: why I’d buy FTSE 100 shares despite a potential stock market crash

The FTSE 100 faces a number of significant risks that could derail its performance in the remainder of 2019 and into 2020. For example, the trade war between the US and China is ongoing, while the outlook for the eurozone economy has weakened in recent months. Alongside this, geopolitical risks in Hong Kong and Brexit could cause investor sentiment to weaken. This may lead to declining share prices.

Despite this, the FTSE 100 could prove to be a worthwhile place to invest to generate a retirement nest egg. Its valuation suggests it offers a wide margin of safety, while its track record shows it’s always been able to recover from bear markets. As such, a fall in its price level could be a buying opportunity for long-term investors.

Potential threats

The FTSE 100 has more than doubled since the financial crisis. It’s experienced a bull market for over a decade, which suggests that a bear market would not be surprising. After all, the stock market is highly cyclical and has a track record of switching between booms and busts.

There are a wide range of risks facing the index. Perhaps most significant is the ongoing global trade war. This is already causing a reduction in global GDP growth, and could continue to do so unless an agreement is reached between the US and China.

Furthermore, political risks in Europe and the US could combine to cause a period of weaker investor sentiment. Even if GDP growth remains positive over the coming months, the fear of a possible recession could cause a downward movement in the FTSE 100’s price level.

Long-term growth opportunity

The FTSE 100, of course, continually faces major risks. For example, over the last decade, it’s experienced a seemingly never-ending list of potential threats that have produced volatile periods. They have included a growth slowdown in China, the EU referendum, and the US election of 2016. Following all of those events, investor sentiment eventually improved and the index was able to produce a high rate of growth that has led to it achieving record highs.

Therefore, the existence of risks doesn’t necessarily mean buying shares is a bad idea. In fact, potential threats to the FTSE 100’s future prospects can give investors an advantage when it comes to the price they pay for companies. In many instances, they will pay a lower price for high-quality stocks when they face an uncertain outlook. This can improve an investor’s risk/reward ratio and ultimately lead to higher returns that may boost your retirement savings prospects.

Certainly, investing at the present time may lead to short-term paper losses. But for anyone with a long-term time horizon, there may be FTSE 100 bargains on offer that improve your chances of retiring early.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.