The market crash caused by coronavirus means that many large-cap shares trade on low valuations. As such, now could be a great time to invest in a diverse range of cheap FTSE 100 shares.
There are three reasons why I believe these investments have the potential to deliver high returns and improve your financial prospects over the long term.
Cheap FTSE 100 shares on offer
At present, many FTSE 100 shares appear to offer excellent value for money. Indeed, many of these companies are trading at a significant discount to their 2019 year-end values. This may mean that they offer a wide margin of safety.
In many cases, these stocks are undervalued because investors have flocked to safer assets such as cash and bonds. The organisations have reported little to no impact on their sales as a result of coronavirus.
Therefore, these cheap FTSE 100 shares look undervalued and could offer substantial returns for investors when confidence returns.
Passive income stream
Many cheap FTSE 100 shares also offer attractive dividend yields. A number of blue-chip stocks have cut or suspended their payouts recently, and this has had a significant impact on investor sentiment towards income stocks.
However, many companies with defensive characteristics have avoided dividend cuts. After recent declines, many defensive FTSE 100 income shares now offer dividend yields that are above their historical averages.
A high dividend yield in comparison to history can indicate a margin of safety. As a result, many cheap FTSE 100 shares now look to offer a margin of safety after recent declines. This implies that income investors who buy these stocks today could be well rewarded over the long run.
Cheap FTSE 100 shares also offer global diversification.
If you spread the risk across a wide range of companies, you are less reliant on a small number of businesses to generate profits and income. This is particularly important in the current environment.
Clearly, the outlook for the global economy is mixed in the near term. However, the economy has repeatedly recovered from significant setbacks in the past. It is likely to do so this time around as well, although it could be several years before the economy returns to full health. Some industries could be hit harder than others.
As a result, owning a diverse portfolio of investments seems sensible. Many cheap FTSE 100 shares provide international diversification as well as diversification across product lines.
Combining these companies with other businesses, that operate in a mix of sectors, could substantially reduce your risks of being negatively impacted by the coronavirus crisis. You could also significantly improve your chances of generating an attractive return on your investments over time.
Therefore, now could be the perfect time to buy a diversified basket of cheap FTSE 100 shares for your portfolio. Doing so could dramatically boost your financial prospects in the long run.
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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.