The stock market crash has left many investors feeling downbeat about the prospects for the FTSE 100 and FTSE 250. They both trade below their 2020 starting prices, and face risks such as a continued rise in coronavirus cases that could further harm their progress.
However, investing in shares after the stock market downturn could be a sound move. They have the potential to produce sound recoveries, which could make them a better means of obtaining a seven-figure portfolio than buy-to-let properties.
Stock market crash opportunities
The stock market crash has caused many FTSE 100 and FTSE 250 shares to trade on low valuations. In some cases, such price levels have not been present since the last bear market in 2008/09. Therefore, the is an opportunity for long-term investors to buy high-quality businesses while they offer wide margins of safety. Over time, this can lead to high returns as the world economy and the stock market experience periods of growth.
Clearly, stock prices could be volatile over the short run. Risks such as coronavirus, as well as political uncertainties caused by events such as the US election and Brexit, may lead to further declines in stock prices. However, the current valuations on offer across the FTSE 350 indicate that now may prove to be a good time for investors to build a diverse portfolio of high-quality businesses.
Buy-to-let’s limited opportunities
Although buy-to-let has not yet experienced a market crash akin to that of the FTSE 100 or FTSE 250, over time the prospects for house price growth may become more limited. Factors such as rising unemployment and insecure job prospects for many people may cause houses to become increasingly unaffordable. Even though interest rates have fallen, high house prices relative to average incomes may weigh on the sector’s outlook for some time.
Furthermore, buy-to-let properties may be riskier than buying a diverse range of shares. They are illiquid investments, while it is difficult to diversify due to the high costs of buying even one property. Therefore, from a risk/reward perspective the stock market could hold greater appeal.
Making £1m after the stock market crash
Making £1m from shares after the stock market crash may not seem be an attractive idea according to many investors at the present time due to its uncertain near-term outlook. However, indexes such as the FTSE 100 and FTSE 250 appear to be undervalued, and have long histories of successful recoveries.
Buy-to-let property may fail to match the returns available on the stock market. Its price declines may be yet to come as macroeconomic weakness weighs on demand for what are relatively unaffordable properties in many areas. Therefore, investors who are looking to make a million may wish to focus their capital on undervalued FTSE 350 shares trading at prices that are rarely seen.
The post Forget buy-to-let. The stock market crash may be a once-in-a-lifetime chance to make £1m appeared first on The Motley Fool UK.
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Motley Fool UK 2020