Forget gold. I’d buy cheap UK shares in a second stock market crash

I strongly believe that bargain UK shares could offer superior long-term growth prospects to gold in a second stock market crash.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The likelihood of a second stock market crash continues to be relatively high. Risks, such as a second wave of coronavirus, as well as political uncertainty surrounding Brexit, could weigh on investor sentiment over the coming months.

Should a downturn occur, many investors may decide that less risky assets, such as gold, are more attractive than UK shares.

However, over the long run, the returns on offer from bargain stocks in the FTSE 100 and FTSE 250 could significantly outperform the gold price. As such, buying them, rather than gold, could prove to be a shrewd move.

A second stock market crash

Only time will tell whether indexes such as the FTSE 100 and FTSE 250 experience a second market crash. Risks to the economic outlook remain in place, and could negatively impact on the financial performances of a wide range of businesses. In turn, investors may become increasingly bearish, which could send UK shares lower.

In such a scenario, buying gold and other less risky assets may seem to be a sound move. The precious metal has a long history as a defensive asset that’s generally performed well in periods of economic weakness.

However, bargain UK shares could offer a better long-term return outlook than gold after a second market crash as a result of the precious metal’s high price. It’s breached its record high this year, which suggests there may be more limited scope for capital growth than there has been in recent years. And, with investor sentiment likely to improve over the long run as fiscal and monetary policy stimulus take effect, buyers of FTSE 100 and FTSE 250 shares could benefit from a sustained recovery.

Preparing for a slump

Of course, there’s doubt as to whether a second market crash will occur. As such, investors who are able to unearth high-quality businesses trading at low prices may wish to invest today. Their prices may factor in the potential for a further decline in the stock market. This could mean they currently include a wide margin of safety.

If there’s a downturn in UK share prices, investors may wish to remind themselves of the track record of indexes such as the FTSE 100 and FTSE 250. Yes, they have experienced major recessions and bear markets over recent decades. But they have always recovered and posted annualised total returns in the high-single-digits.

By investing while share prices are cheap, such as after a market crash, you may be able to obtain an even higher return over the long run that’s significantly ahead of other assets such as gold. Volatility may be high among UK shares. But their past performance suggests that they’re more than likely to offer the best returns available for investors who can look beyond short-term uncertainty.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The Anglo American share price soars to £25, but I’m not selling!

On Thursday, the Anglo American share price soared after mega-miner BHP Group made an unsolicited bid for it. But I…

Read more »

Investing Articles

Now 70p, is £1 the next stop for the Vodafone share price?

The Vodafone share price is back to 70p, but it's a long way short of the 97p it hit in…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

If I’d put £5,000 in Nvidia stock at the start of 2024, here’s what I’d have now

Nvidia stock was a massive winner in 2023 as the AI chipmaker’s profits surged across the year. How has it…

Read more »

Light bulb with growing tree.
Investing Articles

3 top investment trusts that ‘green’ up my Stocks and Shares ISA

I’ll be buying more of these investment trusts for my Stocks and Shares ISA given the sustainable and stable returns…

Read more »

Investing Articles

8.6% or 7.2%? Does the Legal & General or Aviva dividend look better?

The Aviva dividend tempts our writer. But so does the payout from Legal & General. Here he explains why he'd…

Read more »

a couple embrace in front of their new home
Investing Articles

Are Persimmon shares a bargain hiding in plain sight?

Persimmon shares have struggled in 2024, so far. But today's trading update suggests sentiment in the housing market's already improving.

Read more »

Market Movers

Here’s why the Unilever share price is soaring after Q1 earnings

Stephen Wright isn’t surprised to see the Unilever share price rising as the company’s Q1 results show it’s executing on…

Read more »

Investing Articles

Barclays’ share price jumps 5% on Q1 news. Will it soon be too late to buy?

The Barclays share price has been having a great time this year, as a solid Q1 gives it another boost.…

Read more »