The FTSE 100’s recent market crash is likely to increase demand for gold and Cash ISAs. They are deemed by many investors to be far less risky than shares – especially in the short run. The economic impact of coronavirus is still unclear, so investors may increasingly value perceived safety over return potential.
However, for long-term investors who are seeking to improve their chances of retiring early, buying FTSE 100 stocks today could be a logical move. They could allow you to enjoy a likely recovery in the stock market’s performance over the coming years.
The stock market’s crash may naturally increase the appeal of gold and Cash ISAs in the short run. Gold has a history as a defensive asset, while cash will not lose value at a time when the FTSE 100 has experienced a sharp decline.
However, Cash ISAs could harm your retirement prospects in the long run. The Bank of England recently decided to reduce interest rates to just 0.1%. Therefore, the return that your cash will generate over the coming years is likely to be below inflation. This will lead to a loss in your spending power. And it could make it more difficult to fund your retirement.
Likewise, gold’s appeal could decline over the medium term. Investor sentiment has always improved following even the worst stock market crashes. And it is likely to do the same this time around. With gold trading at a seven-year high, now may not be the right time to purchase the precious metal.
Buying FTSE 100 shares today may feel like the wrong move to make. After all, the world economy is facing arguably its biggest test in peacetime. They could experience further falls in the short run. And it is impossible to accurately predict how deep the economic damage will be from the coronavirus outbreak.
However, history shows that the FTSE 100 has always recovered from its variety of bear markets to post new record highs. As such, buying high-quality stocks while they trade at low valuations could be a means of improving your returns prospects in the long run. They may not only survive the possible upcoming recession, but may be able to expand their market share and generate improving returns in the long run.
Key to buying shares today could be to adopt a long-term time horizon, rather than focusing on the near-term prospects for the stock market.
The FTSE 100 could take a substantial amount of time to recover from its recent crash. Investors who have a long time left until they will retire are likely to have sufficient time for their holdings to recover from the current bear market. This may increase your chances of generating high returns in the coming years, which improves your prospects 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.