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Worried about a FTSE 100 stock market crash? I’d sell gold and invest like Warren Buffett

The FTSE 100’s stock market crash may not yet be over. A weak economic outlook means that investor sentiment could decline in the coming months.

This may cause some investors to pivot from stocks to gold at the present time. They may favour the precious metal’s status as a store of wealth during a turbulent economic period.

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However, the recovery potential of the stock market means that buying bargain shares now could produce high returns in the long run. As such, following Warren Buffett’s advice and buying a range of high-quality businesses today could improve your prospects of retiring early.

An uncertain outlook for the FTSE 100

At the present time, the outlook for the FTSE 100 is exceptionally difficult to predict. Risks such as trade tensions between the US and China may remain high post-coronavirus, while the prospect of a second wave of the pandemic may cause sentiment among businesses and investors to deteriorate over the coming months.

As such, the gold price could outperform the index over the short term. Its track record as a defensive asset could make it increasingly popular at a time when low interest rates look set to remain in place over the medium term. This means that income-producing assets such as cash and bonds lack appeal compared to gold, thereby increasing the appeal of the precious metal among risk-averse investors.

A changing future

The FTSE 100’s track record shows that positive and negative market conditions never last. Certainly, there could be a prolonged period of difficulty ahead for the world economy that weighs on stock prices. However, over time, investor sentiment and the operating environments for businesses are likely to improve. This means that stock prices are very likely to recover, which could increase investor demand for them and reduce demand for lower-risk assets such as gold.

Investors such as Warren Buffett have previously sought to purchase high-quality businesses while their futures are challenging. In doing so, they have obtained wide margins of safety that have increased their long-term return potential. By holding such companies for the long term, and waiting for their financial performances to improve and for investor sentiment to do likewise, it is possible to earn relatively high returns from the stock market.

Worrying about a market crash

Clearly, buying FTSE 100 shares today could mean there are paper losses ahead. However, investors with an outlook that spans years, rather than months, can use short-term market weakness to boost their chances of generating high returns from buying stocks when they are priced at bargain levels.

Such a strategy has been successful for Warren Buffett. It may not make you a billionaire, but could boost your retirement prospects and even help to bring your retirement date a step closer.

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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.