The FTSE 100’s near-term prospects may be risky. But its long-term reward potential appears to be high. History has shown that buying high-quality companies during an economic downturn can lead to impressive capital gains for investors. After all, bull market have always followed bear markets since the FTSE 100’s inception in 1984.
As such, buying FTSE 100 shares today could be a better idea than purchasing Bitcoin. The virtual currency lacks fundamentals and also has a significant number of risks that could limit its capital growth potential.
The FTSE 100’s recent crash has been faster and more pronounced than many of its previous downturns. However, the index has a history of cyclicality. In other words, its growth has been interrupted on several occasions since inception by short periods of severe declines. Yes, they have been painful for investors in the short run. But the index has always gone on to recover from them.
Buying during the FTSE 100’s bear markets has been a sound means of generating high returns in the past. Investors have purchased financially sound businesses that have been able to overcome the economic challenges faced in the short run. And those investors have generally been in a strong position to prosper from the index’s subsequent recovery.
Therefore, adopting a similar strategy at the present time could be a shrewd move. Investors may be able to buy high-quality assets while they trade on low valuations, and profit from their recovery.
As mentioned, purchasing stocks that can overcome short-term challenges to grow their bottom lines in the long run is a key component of buying shares during market downturns. Companies with weak balance sheets, for example, may find it difficult to survive a period of slower sales growth.
Fortunately, FTSE 100 shares have detailed accounts and updates that provide investors with guidance as to whether they are likely to survive an economic downturn. Furthermore, investors can gauge whether a stock offers good value for money by assessing data such as its price-to-earnings (P/E) ratio and comparing it to previous levels.
By contrast, it is not possible to gauge whether Bitcoin offers good value for money at the present time. Its price is solely determined by investor sentiment. As such, new investors do not know whether its current price reflects good value for money. Furthermore, risks such as its limited size and the potential for regulatory change may lead to a more challenging outlook for the virtual currency than many investors currently anticipate.
Therefore, the FTSE 100’s recent decline could present an excellent buying opportunity for long-term investors. Through buying a diverse range of strong businesses at low prices, you could generate high returns with lower levels of risk than assets such as Bitcoin. This may lead to an improvement in your financial outlook.
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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.