The FTSE 100 has experienced a market crash over recent weeks that has included some of its largest daily falls since 1987. Although its price level has shown signs of a rebound in recent trading sessions, it continues to trade significantly below its record high.
Of course, it may take some time for the index to fully recover. But it has a strong track record of producing new record highs following its downturns. As such, now could be the right time to by a diverse range of FTSE 100 shares for the long run ahead of a likely recovery for the index.
FTSE 100 recovery prospects
During previous downturns and bear markets, the short-term prospects for the FTSE 100 have been exceptionally difficult to judge. For example, very few investors believed that the index was trading at its lowest point in March 2009. The economic outlook was dire, yet the FTSE 100 produced a stunning recovery. This even saw it more than double in the following years.
At the present time, it is impossible to know when the economy will return to its pre-coronavirus performance. The length of the current lockdown is a known unknown. And meanwhile, the prospect of a second wave of coronavirus later in the year may mean that investor sentiment is held back to some degree. That said, should that second wave not happen, the economy and stock market could deliver stronger performances than currently expected by many investors.
The timing of a FTSE 100 recovery is unclear due to the unpredictability of the news. But in the long run, the index is likely to revisit its all-time high of around 7,780 points. It has always recovered from its previous lows, and investors who have purchased shares during times of great uncertainty have often benefited from the index’s subsequent recovery.
As such, adopting a similar approach today could be a sound move. Certainly, there are significant risks facing investors over the coming months. But in many cases the valuations on offer across the FTSE 100 suggest that these uncertainties have been priced in by investors. Many stocks are trading at levels not seen since the last financial crisis. They could provide investors with scope to generate significant capital growth over the long run.
Building a FTSE 100 portfolio
Previous stock market recoveries have, of course, been uneven. Some sectors have surged higher following past bear markets, while others have experienced challenging operating conditions for many years. For example, the banking sector struggled to return to previous highs after the financial crisis.
Therefore, building a portfolio of diverse businesses could be a sound move. It may limit your risks to specific sectors that may find trading difficult after coronavirus has passed. It may also boost your returns in the long run, and allow you to partake in the FTSE 100’s long-term recovery.
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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.