The 2020 stock market crash may provide investors in UK shares with greater opportunity to generate capital growth in the long run.
Many high-quality FTSE 100 and FTSE 250 shares have failed to recover from the stock market’s decline earlier this year. As such, they trade on low valuations that could move significantly higher over the coming years.
By investing even modest amounts of money in a diverse selection of British shares, you could obtain a generous portfolio. You could even make a million during your lifetime.
Stock market crash
Investor sentiment has continued to be relatively weak after the stock market crash. Companies that face uncertain operating environments in the short run trade at low prices in many cases. Therefore, their valuations may not reflect their long-term financial prospects. This could mean that investors who purchase FTSE 100 and FTSE 250 shares today can obtain market-beating returns as the economic outlook improves.
Of course, there is scope for share prices to move lower in the coming months. A second market decline cannot be ruled out due to the existence of risks such as Brexit and coronavirus. This may make many investors cautious about investing money in shares after the stock market crash. However, the best times to buy shares have often coincided with those moments when risks have been at higher levels. Such conditions produce lower valuations that can translate into higher returns over the long run.
Benefiting from a recovery
Almost any individual can benefit from a likely long-term recovery after the stock market crash. Unlike other popular investments such as buy-to-let property, you do not need large sums of capital available to make a worthwhile return from shares in the long run. In fact, a £500 monthly investment could turn into a large nest egg in the coming years.
For example, assuming the stock market continues to deliver an 8% annual total return, a £500 monthly investment could produce a portfolio valued at £1m within 35 years. However, investing in UK shares after the market decline may produce even higher returns due to them being priced at a low level. Indeed, investors who purchased a diverse range of stocks after previous crises such as the 1987 crash, the dotcom bubble and the global financial crisis are likely to have beaten the stock market’s annual return.
As such, now could be the right time to buy shares to improve one’s long-term financial prospects. Many investors may feel as though waiting for a recovery to become clearer after the stock market crash is a logical approach. However, this may mean missing out on today’s low valuations that are likely to prove pivotal in producing a growth rate for a stocks portfolio that is ahead of the wider market’s returns.
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.