The FTSE 100’s recent crash took many investors by surprise. The index fell so fast it wiped out several years of gains in just a few days.
However, in the past few weeks, the FTSE 100 has staged a dramatic recovery. After this recovery, the market rallied back above 6,000 earlier this week before falling back. At the time of writing, the index is up 16% from the March lows.
There could be further gains on the cards.
FTSE 100 performance
The FTSE 100 crash isn’t the first time the index has experienced a severe decline. Since its inception in 1984, the index has fallen heavily on multiple occasions.
The good news for investors is that on every occasion, the blue-chip index has produced a successful recovery.
Investors who were clever enough to buy at the bottom have always been handsomely rewarded for their efforts.
Of course, at this stage, it is impossible to tell if the FTSE 100 has fully recovered from its slump, as the setback in recent days shows. The outlook for the global economy is dire, and it doesn’t look as if the situation is going to improve any time soon.
As such, the index could experience further declines in the near term. Some analysts have also suggested that stock markets could return to the lows printed in March.
These forecasts are concerning, but investors should focus on the long term. Multiple studies have shown that trying to time the market in the near term is a waste of time and effort.
It is impossible to predict in which direction the market will move over the next few weeks, months or even years.
Nevertheless, over the long run, the FTSE 100 has generally recorded growth in its price level. It is highly likely that this trend will continue over the next few decades.
Indeed, stock markets tend to track global economic growth. If the economy shrinks this year, it seems probable that the market will produce a negative return. But if the economy returns to growth in 2021, the FTSE 100 is likely to move higher.
While the global economy has experienced several notable setbacks in the past few decades, it has grown significantly over the past 100 years. This suggests that investors with a long-term view will benefit by buying the index at a low valuation and holding on for the long run.
Look past the volatility
So overall, the FTSE 100 has registered a volatile performance over the past few weeks. And it is likely that the index will continue to jump up and down until the coronavirus crisis is over.
Investors should look past this near-term volatility. By adopting a long-term investment horizon, and buying the FTSE 100 today, you could improve your financial prospects and bring your retirement date a step closer with minimal effort.
The best way to replicate the FTSE 100’s performance over the long term is to invest in a low-cost index tracker fund. This will allow you to benefit from the wealth-creating power of the stock market without having to pick investments yourself.
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Rupert Hargreaves 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.