Buying the FTSE 100 after the recent stock market crash may not seem like a sound financial move. After all, the economic prospects for the UK and the global economy are still pretty bleak. It could be years before the economy has recovered to its pre-crisis position.
However, buying the FTSE 100 today could prove to be a profitable move over the long run. Buying the index as a whole may increase your chances of benefiting from the economic recovery when it finally takes hold.
FTSE 100 recovery
As noted above, at this point it’s difficult to say when the global economy will recover from the coronavirus crisis. It could be months or years. It’s also quite challenging to pick companies that will emerge from the crisis in one piece.
Nevertheless, what we do know is that the FTSE 100 has weathered economic storms like this in the past. On every occasion, the index has suffered a significant decline, but it has recovered these losses over the next few months and years.
Therefore, the chances are that the FTSE 100 will recover from its decline in 2020 and 2021. But rather than trying to pick companies that might survive, the better option could be to buy the index as a whole.
Buying the index
Buying the FTSE 100 may allow you to benefit from the index’s recovery over the next few years while limiting risk.
The index offers exposure to 100 different companies in different sectors and industries. Moreover, two-thirds of the index’s profits are generated outside the UK. This means the index is well-diversified, and while some of its constituents might struggle over the next few years, the FTSE 100 may produce a positive return.
Buying the FTSE 100
It’s relatively easy for investors to buy the FTSE 100 today. Most online stock brokers offer access to low-cost passive tracker funds. These funds track the underlying index without any input from investors. All you need to do is click buy, sit back, and relax.
What’s more, the size of passive tracker funds means they tend to be relatively low cost. Some investment funds can charge more than 1% a year in fees. On the other hand, many passive tracker funds charge less than 0.1%.
The impact of lower fees on your investment over the long term cannot be understated. For example, investors paying 1% in fund management fees over a decade would cost around £1,400 more in fees on an investment of £10k than investors paying just 0.1%.
So, while the prospects for FTSE 100 stocks may be uncertain at present, the global economy has always recovered from its challenging periods.
As such, buying a low-cost FTSE 100 tracker may be the best way to benefit from this recovery while minimising risk. Doing so could help you obtain a sizeable total return to improve your long-term financial prospects.
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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.