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Why I think £10,000 invested in bargain FTSE 100 stocks today can help you retire early

The FTSE 100’s recent market crash could cause investors to become increasingly cautious about the prospect of investing their retirement savings in large-cap shares. After all, the index could experience a period of decline after its rebound, since the outlook for the world economy is highly uncertain.

However, the relative appeal of FTSE 100 shares and their low valuations means that now could be an opportune moment to buy a selection of stocks with £10,000, or any other amount. They may deliver strong long-term recoveries that increase your chances of retiring early.

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Long-term rebound potential

The recent performance of FTSE 100 shares has been highly disappointing. However, the index has often experienced such periods throughout its history. In other words, its progress has never been smooth or linear. However, it has been able to deliver significantly higher returns than other major asset classes, such as cash and bonds, over a prolonged period of time.

Since many people who are investing for their retirement are likely to have a long-term time horizon, FTSE 100 shares could be relatively appealing at the present time. Low interest rates mean that the spending power of cash and bonds may decline, since their returns may be below inflation. Meanwhile, buy-to-let property may struggle to produce strong gains as tax rises and tighter borrowing requirements could make it a less attractive asset class than it has been in recent years.

Therefore, on a relative basis, the FTSE 100 seems to offer the most appealing means of generating high returns in the long run. Its capacity to recover from bear markets and downturns means that it could offer stronger returns than its recent performance suggests.

Low valuations

The prospects for the FTSE 100 may be more enticing following its decline in 2020 than they have been for a number of years. In many cases, the valuations of large-cap shares are significantly below their long-term averages. This could mean that they offer greater capital growth potential over the coming years, since they are starting at a lower base from which to increase in price.

Certainly, in some cases low valuations are deserved. Some sectors face hugely challenging outlooks that could lead to depressed sales and profit for many months. However, other stocks trade on low valuations because of the relative unpopularity of the index at a time when many investors are seeking less risky assets. This could enable long-term investors to access undervalued shares across the index’s various sectors.

Investing in FTSE 100 shares today

Many people may not have a sizeable sum of money, such as £10,000, available to invest today. However, starting to plan for your retirement with smaller amounts invested in a diverse range of FTSE 100 stocks could be a worthwhile move. It could bring your retirement a step closer – especially at a time when there are low valuations and a lack of appeal among other assets.

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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.