The FTSE 100’s recent crash is likely to have caused many investors to become worried about its future prospects. The threat of coronavirus, as well as other risks facing the world economy, could realistically lead to more difficulties for the stock market.
However, it may now offer better value for money than it did at the start of the year. As such, and with other mainstream assets appearing to have unfavourable risk/reward opportunities, it may be the most attractive means of investing £100k to make a million.
The risks posed by the spread of coronavirus could lead to further challenges for the stock market. So far, coronavirus has caused supply chain difficulties for a range of companies, while restrictions on movement have meant that consumer demand for a range of products and services has declined. If the disease spreads throughout the world economy, it may cause a sharp slowdown in economic growth.
In addition, the upcoming US election and the uncertainty posed by Brexit may mean that investor sentiment is relatively weak during 2020. This may cause investors to adopt an increasingly risk-averse standpoint that leads to a further fall in the stock market in the short run.
Of course, for investors who are seeking to turn £100k into a million over the long run, the current valuations on offer across the FTSE 100 could be hugely enticing. A number of industries now contain companies that offer high dividend yields, low ratings, and strong fundamentals. They could produce an impressive rate of growth in the coming years, growth that is ahead of the FTSE 100’s past performance.
Even if the FTSE 100 records a similar return in the future as its past gains, investors could stand to benefit from its 8% annualised total returns since inception. At a time when savings accounts and bonds offer similar returns to inflation in many cases, and the net returns on buy-to-let properties are lower for many landlords due to tax changes, the FTSE 100 could offer an impressive means of boosting your portfolio’s valuation in the long run.
In fact, it would take around 30 years to turn £100k into a £1m portfolio when invested in the FTSE 100 at an annualised return of 8%. This could be a much shorter period than is the case for other mainstream assets.
Clearly, the FTSE 100 may take some time to recover from its recent downturn. As mentioned, it faces a number of risks that could hold back investor sentiment in the coming months.
However, the index has always recovered from its corrections and bear markets. At the present time, it may seem as though a recovery is unlikely, but economic growth has always recovered and investor sentiment has continually bounced back following a range of crises.
Therefore, now could be the right time to buy a range of FTSE 100 shares to potentially turn £100k into £1m over the long run. The index’s low valuations could enable you to benefit from an improved rate of return in the coming years.
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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.