Investing money in UK shares after the stock market crash can be a difficult task. Risks such as Brexit and the pandemic remain in play. They could cause difficult trading conditions for many businesses. Therefore, it may be prudent to seek to reduce the impact of potential threats when investing money in British shares.
Furthermore, buying a diverse range of high-quality businesses with turnaround potential could mean that one generates impressive returns in the long run. Doing so may improve one’s financial prospects over the coming years.
Risks after a stock market crash
This year’s stock market crash reflects an uncertain economic environment. Lockdowns caused by the pandemic, as well as political risks brought on by Brexit, could mean an extended period of slower growth for the UK and global economies.
Therefore, it may be a good idea to try to manage risks wherever possible when buying UK shares. Diversification is an obvious means of achieving this goal.
Holding a wide range of companies that operate in different sectors and geographies can reduce your reliance on a specific industry or location. This may be beneficial because it remains unclear to what extent some industries and regions will be affected by current threats.
Furthermore, buying UK shares that can survive a second stock market crash may be a worthwhile move. This means companies with solid balance sheets and the financial strength to overcome potentially challenging operating conditions in the coming months.
Buying British shares that are more likely to survive a period of economic weakness may mean that one’s portfolio can access the likely recovery in indexes such as the FTSE 100 and FTSE 250 over the coming years.
Investing in UK shares with turnaround potential
The stock market crash has clearly caused many investors to become downbeat. They may feel a stock market recovery isn’t possible, due to the risks ahead.
However, UK shares are very likely to recover over the coming years. They have done so after every previous economic crisis and bear market. Many turnarounds have come after larger falls for the stock market than have taken place in 2020.
Therefore, identifying companies with low valuations and the right strategies to adapt to changing global economic conditions could be a sound move. They may have competitive advantages and could offer a faster turnaround than their weaker sector peers.
Clearly, the stock market crash has caused paper losses for many investors. However, every stock market downturn brings opportunities to make positive returns from the next bull market. That process may take some time to come into effect.
However, investors who buy a diverse range of high-quality UK shares today could be among those who benefit the most from a likely resurgence in stock markets over the long term.
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.