Investors who are seeking to build a retirement nest egg via UK shares may find there is more opportunity to do so after the stock market crash.
Certainly, there may yet be further challenges ahead for the FTSE 100 and FTSE 250 due to persistent political and economic risks. However, over the long run the growth potential for stocks could be significantly higher than for other mainstream assets.
As such, now could be the right time to buy a diverse range of UK shares and hold them for the long run. They could help to bring your retirement date a step closer.
Return potential after a market crash
A challenging aspect of investing in UK shares is being able to buy them when other investors are selling them. Often, such occasions happen when there is a market crash and other investors are seeking short-term safety in less risky assets such as bonds and cash.
Through buying while other investors are mostly selling, it is possible to obtain high-quality businesses at low prices. In many cases, they are likely to recover as their financial performances improve and their valuations revert to historic averages. This could lead to significantly higher returns than other assets.
For example, low interest rates look set to remain in play over the coming years as policymakers seek to stimulate the economy and avoid a further market crash. This may lead to disappointing returns for cash and bonds, which could even fail to match inflation in some cases.
Similarly, assets such as gold may prove popular in the short run. However, the precious metal’s high price and the likelihood of improving investor sentiment towards risky assets may mean that its return prospects are somewhat disappointing on a long-term view.
The track record of indexes such as the FTSE 100 and FTSE 250 show that the recent market crash is not especially common. Therefore, taking advantage of it could make a significant positive impact on your return prospects.
It may enable you to build a portfolio of the best UK shares you can find while they offer wide margins of safety that are only temporary in nature. And, while there is always scope for their prices to move even lower, the valuations of many stocks appear to factor in a period of weak operating performance caused by economic weakness.
Therefore, investors may wish to start buying high-quality UK shares before their prices rise after the market crash. The stock market has always recovered from its various downturns to post new record highs. Therefore, a limited window of opportunity may exist through which to capitalise on attractive prices. Over time, their recovery potential is likely to be realised. This may mean that they outperform other mainstream assets, and have a significantly positive impact on your retirement plans.
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.