Buying bargain shares after the FTSE 100’s market crash may not appeal to all investors. They may feel that risks could continue to negatively impact on the index’s performance, and that other assets such as Bitcoin may be a better means of generating high returns.
However, the past performance of the stock market suggests that now could be an opportune moment to buy high-quality businesses while they offer low valuations. They could produce sound recoveries that increase your chances of building a £1m portfolio in the coming years.
Time to buy Bitcoin?
Bitcoin’s outperformance of the FTSE 100 in recent months may convince some investors that the virtual currency now offers a superior investment outlook. While it could continue to outperform the stock market in the coming months, it faces substantial risks over the long run that may impact negatively on its price level.
For example, regulatory risks could cause investor sentiment towards the cryptocurrency to decline. Some regulators have been negative about the cryptocurrency and have suggested that it may need to be more closely monitored in future. This could inhibit its capacity to replace traditional currency, and could lead to doubts about its role in the world economy over the long run.
Furthermore, there are a variety of other virtual currencies that may become more popular than Bitcoin. Since their prices are based on investor sentiment, rather than fundamentals, a popularity contest may mean that the prices of cryptocurrencies are highly volatile as investor sentiment ebbs and flows.
FTSE 100 potential
The FTSE 100 may not have an especially positive near-term outlook. Risks such as a global economic slowdown and the potential for a second wave of coronavirus may hold back its performance.
However, its track record shows that buying stocks when they face significant risks has been a sound overall strategy. It enables investors to purchase companies when they offer wide margins of safety, which can translate into high returns in the long run.
By focusing your capital on businesses with competitive advantages, sound finances and strategies that can help them to overcome the risks they face, it is possible to take advantage of the stock market’s likely long-term recovery. This may seem unlikely at the present time and a sustained bull market has often been viewed as doubtful by investors during recessions and market downturns. However, the stock market has always recovered to post new record highs.
A buy-and-hold strategy
Therefore, using a buy-and-hold strategy to benefit from the FTSE 100’s recovery potential could be a shrewd move. It may catalyse your portfolio’s performance and, through diversification, may offer lower risks than buying Bitcoin. It could improve your long-term financial outlook, and may even lead to you obtaining a £1m+ portfolio as stock prices recover in the coming years.
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.