The FTSE 100’s market crash may currently be viewed negatively by investors who are seeking to obtain a seven-figure portfolio. They may see it as a major setback to their plans, since the index has declined by around 15% since the start of the year.
What’s more, it could fall further in the short run. As a result, they may look to find stronger growth opportunities via other assets, such as gold.
However, the index’s decline may prove to be an opportunity to buy the best UK shares at cheap prices. Over time, the index is likely to recover and could deliver higher returns than other mainstream assets, including gold.
Sticking with the FTSE 100
Investors who’ve persisted in buying and holding a diverse range of FTSE 100 shares have been handsomely rewarded over the long run. The index has produced an annualised total return of around 8% since its inception in January 1984. That’s greater than the annualised return of gold over the same period. Despite its recent surge to trade close to an all-time high, the precious metal has returned around 4.5% per annum since the start of 1984.
Clearly, the past won’t replay perfectly in future. However, the stock market’s capacity to produce strong recoveries after a market crash has been in evidence multiple times during its history. For example, it’s recovered from bear markets, such as the 1987 crash, the tech bubble, and the financial crisis, to post new record highs. Therefore, a similar outcome seems likely following its current crisis.
Buying cheap UK shares
Due to the FTSE 100’s likely recovery prospects, buying a range of high-quality businesses today could be a sound move. Investors can benefit from a likely improvement in investor sentiment as the world economy’s growth prospects turn positive.
By contrast, sentiment towards defensive assets, such as gold, could come under pressure over the medium term. Certainly risks, such as a growth in coronavirus cases, could catalyse the precious metal’s price in the short run. Similarly, a period of low interest rates may be favourable to its price performance.
However, as investor sentiment improves and demand for riskier assets rises, gold’s appeal could decline. As it trades at a relatively high level today, its potential to produce further growth may be somewhat limited.
Making a million from the stock market
Obtaining an annualised 8% return from FTSE 100 shares may mean that making a million is a long-term task for any investor. However, through buying strong companies while they’re cheap, you could improve upon the index’s past returns to generate a larger portfolio.
In the long run, it could even be valued at over £1m. And that would certainly boost your financial position compared to what it would be had you invested in other assets.
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.