The FTSE 100’s recent crash is likely to have left the vast majority of investors with paper losses across many of their holdings. In the short run, things could get worse before they improve as the number of coronavirus cases sadly rises.
However, in the long run the FTSE 100’s recent decline could prove to be a buying opportunity. There are numerous high-quality businesses trading on low valuations. Through buying a selection of them now, you could improve your prospects of retiring early.
As with any market crash, it is currently unclear for how long the FTSE 100 will continue to decline. Some investors have said the index’s price level now suggests the full economic impact of coronavirus is factored-in. But others are relatively downbeat about the index’s prospects. That is no surprise at a time when unemployment levels are soaring and corporate profits are falling.
In the near term, the FTSE 100 could realistically move sharply upwards or downwards. As such, investors may wish to take a long-term view of their portfolios. Otherwise, they may end up being disappointed should the performance of the world economy worsen before it improves.
One of the positives of buying FTSE 100 shares is that in many cases they are relatively strong businesses. Unlike their smaller peers, FTSE 100 stocks usually have a broad geographical spread and solid balance sheets. These factors may improve their chances of overcoming short-term risks facing the economy. They may even enable them to strengthen their market positions while their smaller sector peers experience financial difficulties.
In many cases, even the most financially sound businesses in the FTSE 100 currently trade on low valuations. Across sectors such as retail, banking and consumer goods, a large number of high-quality businesses that are very likely to survive the current economic downturn are trading on historically low valuations. This suggests they offer wide margins of safety, and could deliver strong recoveries in the coming years.
Further falls for the FTSE 100 in the short run may be disappointing. But most investors who are investing for retirement are likely to have a long-term view. So a high degree of volatility and paper losses in the coming months may not hurt their ability to produce a worthwhile nest egg for older age.
In fact, buying shares now while they trade on low valuations could be a means of improving your retirement prospects. The FTSE 100 has an excellent track record of delivering successful recoveries from its lowest points. Through buying a diverse range of high-quality businesses at low valuations, you can take part in what seems to be a very likely long-term recovery. Over time, this can improve your financial prospects and boost your chances of retiring early.
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.