The FTSE 100’s recent market crash may lead some investors to hold off buying large-cap stocks within their retirement portfolios. They may determine that due to a high degree of economic uncertainty it is better to hold less risky assets, and wait for calmer trading conditions before buying high-quality stocks.
However, this strategy may not be the most effective one for long-term investors. The FTSE 100 has a low valuation and track record of recovery. That, and the lack of appeal among other assets may mean buying a selection of large-cap shares today is the most effective means of bringing retirement a step closer.
Cheap FTSE 100 stocks
The FTSE 100 may have produced a rebound from the lows experienced in March, but many of its members continue to trade on exceptionally attractive valuations. In many cases, their valuations are significantly below their historic averages. In some cases, they are even trading at prices not seen since the last bear market in 2008/09.
Buying bargain FTSE 100 stocks may not be a simple process for many investors. Negative news regarding the spread of coronavirus could cause the stock market to experience further falls in the coming months. That is especially so if there is a second wave of the virus. However, history shows that if you want to buy high-quality stocks when they trade at low prices, you need some uncertainty to push the prices down. As such, near-term volatility may be the price investors pay for long-term capital growth potential.
An improving FTSE 100 outlook
Yes, the prospects for the world economy are highly uncertain over the near term. But in the long run, a recovery seems highly likely. In its history, the world economy has experienced a variety of unique challenges that have caused significant difficulties for a wide range of sectors. However, it has been able to recover from all of them to post positive GDP growth in the long run.
Clearly, coronavirus is an especially challenging event in terms of its human and economic cost. But fiscal and monetary policy stimulus is likely to offer support to the world economy. So the trading conditions facing many industries are likely to improve in the coming years. This could lead to growing profitability and rising share prices for many companies in the FTSE 100.
For investors who are seeking to build a retirement portfolio over the long run, buying FTSE 100 shares today could prove to be a shrewd move. Such investors are likely to have sufficient time available for their holdings to recover.
Currently, assets such as cash, bonds and buy-to-let property lack appeal due to low interest rates and tax changes respectively. So cheap FTSE 100 shares seem to be the most attractive means of improving your retirement prospects.
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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.