The recent stock market crash could provide a range of attractive buying opportunities for long-term investors. A number of high-quality businesses are currently trading at lower prices than they have done for many years. They could make gains as the economic outlook improves.
Therefore, investing modest amounts on a regular basis could pay off over the long run. It could even allow you to obtain a portfolio valued at over a million in the coming years.
Buying opportunities after the stock market crash
The past performance of indexes such as the FTSE 100 shows that the best time to buy shares is often after a stock market crash. At such times, valuations across multiple industries are often at very low levels relative to historic averages. This can mean that there’s scope for relatively high capital gains in the long run as the economic outlook improves.
Clearly, it may take some time for today’s undervalued shares to deliver impressive recoveries. Risks such as Brexit and coronavirus look set to remain in place in the coming months. They could negatively impact on investor sentiment and cause a further downturn in the short run.
However, by taking a long-term view after a stock market crash, you could follow other investors from previous downturns to obtain impressive returns. Despite experiencing crises such as the 1987 crash, the dot com bubble and the global financial crisis, the stock market has produced high single-digit annualised total returns in recent decades. Buying undervalued shares could mean that your portfolio generates even higher returns as they recover.
Making a million with a modest regular investment
Of course, many investors may be more risk averse following the recent stock market crash. They may decide to invest in lower-risk assets such as cash or bonds to avoid potential paper losses in the near term. However, even assuming a similar rate of return to that achieved by the stock market in the past, you could build a surprisingly large portfolio by investing regularly in shares.
For example, a £100 weekly investment that achieves the FTSE 100’s historic 8% total return per annum would be worth £1m within 35 years. Many stocks are now trading at low prices . And that could lead to above-average returns. So now could be the right time to start building a portfolio that can provide a passive income in older age.
Certainly, their returns won’t be smooth. Over the long run, share prices are likely to be negatively impacted by more than one stock market crash. So investing regularly throughout a range of market conditions is important. By spreading your risk across a wide range of businesses and holding for the long run, you could turn an affordable regular investment into a significant amount of capital.
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.