Following the recent market crash, many FTSE 100 stocks now trade on low valuations. As such, now could be a great time to invest in a diverse range of these blue-chip stocks.
While the outlook for FTSE 100 stocks might not be too good in the short run, over the long run, they have the potential to deliver high returns. Therefore, buying them today may significantly improve your retirement prospects.
Long-term outlook
As the coronavirus crisis continues to rumble on, the outlook for the global economy is becoming increasingly uncertain.
Therefore, diversification is arguably more important than ever before at present. Buying a range of FTSE 100 stocks could be the perfect way to benefit from a potential market recovery. It may also help you reduce risk at the same time.
Indeed, over the past few decades, the FTSE 100 has suffered several significant setbacks. However, on every occasion, the index has recovered over the following few years.
It is highly likely that the same thing will happen this time around. While it is impossible to tell what the future holds for the global economy at this stage, the chances are it will be bigger in 10 years than it is today. That should mean higher profits for FTSE 100 companies, and higher share prices as a result. That could help you grow your financial nest egg if your investment aim is a richer retirement.
FTSE 100 stocks basket
Selecting individual companies to profit from such a recovery is the hard part.
With this being the case, buying a basket of high-quality FTSE 100 stocks or an index tracker fund could prove to be a means of benefiting from the FTSE 100’s long-term recovery potential while minimising your risk.
Having a mix of businesses that operate in different locations and in varying sectors could reduce your risks of being negatively impacted by coronavirus and its impact on the global economy.
The best investments
Companies with a strong competitive advantage may be the ones that benefit most from a recovery. This can be in the form of a range of unique services, or unique products, or significant size.
The biggest companies in specific sectors and industries tend to have more significant profit margins, which means they can operate at lower volumes and still make a profit.
Meanwhile, companies that offer a unique product or service, such as pharmaceutical businesses, can charge whatever they like for their products.
This means they are more likely to stay profitable throughout the crisis. These companies also have certain defensive characteristics. That suggests their sales should continue to grow even through harsh economic environments.
However, despite the defensive characteristics of these businesses, many high-quality FTSE 100 stocks are now trading at discounted valuations.
Over the past few weeks, investors have flocked to safe assets such as cash and bonds and I think defensive blue-chip shares should be looked at in the same light. Such shares now appear to offer a margin of safety, and some appear to offer excellent value for money.
As such, if you’re investing for retirement, now could be the perfect time to take advantage of this once-in-a-decade opportunity,
