The FTSE 100’s long-term recovery prospects may seem to be somewhat dubious at the present time. The index faces a number of significant risks, such as a weak global economic outlook. That could derail the market rebound that’s taken place since the crash earlier this year.
However, through buying cheap UK shares today ahead of a likely long-term recovery, you could position your portfolio for growth. It could boost your financial outlook, and help to bring your retirement date a step closer.
FTSE 100 recovery prospects
The FTSE 100’s recovery prospects continue to be very uncertain – even after its recent rebound. Risks such as rising unemployment and weak consumer confidence could create difficult operating conditions for many businesses that lead to declining sales and profitability.
In such circumstances, the likelihood of a full recovery for UK shares may seem low. However, the same could have been said during every one of the index’s previous bear markets. It took some time for a recovery to take hold after the 1987 crash, the dot com bubble, and the global financial crisis, for example. However, the index went on to post new record highs on each occasion.
Therefore, it may not seem like the FTSE 100 will surpass its all-time high of 7,778 points to post a new record high anytime soon. However, the track record of the index suggests it’s very likely to take place in the coming years. Fiscal and monetary policy stimulus, as well as improving investor sentiment, should start to have a greater impact on share prices.
Building a retirement portfolio
Building a retirement portfolio consisting of FTSE 100 shares may seem to be a tough prospect at the present time due to the risks faced by the world economy. It could experience a dip in the near term, as a weak global economy may inhibit stock price growth. But buying high-quality businesses when they’re cheap has shown to be a profitable strategy over the years.
Therefore, focusing your capital on companies that are likely to survive the current economic woes, and prosper in the likely recovery, could be a sound move. They currently offer wide margins of safety in many cases. This may lead to higher capital returns and could have a significant impact on your retirement prospects.
A long time horizon
Many investors are likely to have a long time horizon before they plan to retire. Therefore, while other assets, such as cash and bonds, may offer lower risk of loss in the short run, the return potential on offer from cheap FTSE 100 shares ahead of a recovery could make them relatively more attractive. Especially for anyone who’s seeking to build a nest egg that ultimately helps them to retire early.
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.