The FTSE 100’s market crash in 2020 has prompted some investors to seek less risky assets. For example, the gold price has risen to a seven-year high. Meanwhile, the slower-moving housing market may mean some investors determine buy-to-let properties are a safer destination for their capital than shares at the present time.
However, the FTSE 100’s current valuation suggests it’s more appealing than gold or buy-to-let properties. Combined with its recovery potential, this could mean now is the right time to buy a diverse range of large-cap shares and hold them for the long run.
The gold price could move higher in the short run. The economic impact of coronavirus could be highly negative, which may increase demand for the precious metal. Its history as a store of wealth may prove popular during an economic crisis.
However, investor sentiment seems likely to improve over the long run. This could ease demand for less risky assets such as gold. So investors buying it while it is trading at a high price may generate reduced returns.
Likewise, buy-to-let properties appear to offer unfavourable valuations at present. Although the housing market has been frozen by restrictions on movement, investors considering the purchase of a property in the coming months may fail to benefit from a wide margin of safety. House prices versus average incomes are close to record highs, which suggests there’s limited scope for capital gains in the coming years.
By contrast, the FTSE 100 appears to offer excellent value for money following its recent crash. A wide range of its members now trade on valuations that are significantly lower than their historic averages. This could enable investors to obtain bargain stocks that deliver high returns in the long run.
Although other assets such as gold may outperform the FTSE 100 in the short run, the index’s recovery prospects appear to be bright. It has always recovered from its various economic crises in the past. In fact, it’s has gone on to produce new record highs.
Sometimes this can take several years. But long-term investors are likely to have sufficient time to benefit from improving profitability across their holdings and strengthening investor sentiment.
The history of the stock market shows that, like most assets, it’s cyclical. It experiences bear markets and bull markets on a fairly regular basis. Certainly, the speed of the index’s decline has been somewhat surprising. But just as it was able to recover from the 1987 crash, the dot com bubble, and the global financial crisis, the FTSE 100 looks set to deliver higher highs in the long run.
Investors who can buy large-cap shares today while they’re priced to sell could be in the best position to benefit from a recovery.
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.