The FTSE 100 most recent crash has been among the fastest and most severe in the index’s price level since its inception. In the short run, the FTSE 100 could experience further falls. Especially if news regarding the economic impact of coronavirus is downbeat.
However, over the long run, the low valuations and growth potential offered by the index could produce high returns. As such, buying a diverse range of stocks today could improve your prospects of retiring early.
Predicting the short-term price movements of FTSE 100 shares is difficult enough at the best of times. Given the unprecedented circumstances the world is currently facing, the index could move higher or lower in the coming months.
For example, if consumers resume their pre-coronavirus spending habits in a short space of time then the financial prospects for FTSE 100 companies could be relatively robust. However, if social distancing measures remain in place for some time, and a vaccine is not developed en masse until 2021, the index could experience continued volatility in the coming months.
Therefore, investors should adopt a long-term focus when it comes to buying FTSE 100 stocks. For those who are investing for retirement, they’re likely to have a long time horizon. Therefore, if a stock they purchase falls in the near term, it’s unlikely to have a major bearing on their retirement prospects. They’re likely to have sufficient time for it to recover.
Investing on a long-term basis during a market crash has been a highly profitable strategy since the FTSE 100’s inception. Even if you’d failed to find the precise bottom of the market during the index’s previous bear markets, and instead invested in a selection of stocks when they were relatively cheap, you’re likely to have experienced strong growth over a period of many years.
Looking ahead, the same scenario could come to pass following the recent market crash. Although a quick recovery isn’t guaranteed, the FTSE 100’s track record suggests a new record high is only a matter of years away for the index.
FTSE 100 valuations
Buying cheap shares can be a profitable long-term strategy that helps you retire early. However, buying cheap shares of high-quality businesses could be an even more profitable idea. It may ensure there’s a higher chance of their survival should the economy experience a tough period in the near term.
Strong businesses with solid balance sheets may also be able to capitalise on low valuations across their sectors. That could enable them to make acquisitions or increase their market share.
As such, focusing on low valuations and the quality of your holdings may well boost your portfolio’s performance in the long term. It could even improve your prospects of retiring early.
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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.