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Forget gold and Bitcoin. I’d buy crashing FTSE 100 shares before it’s too late

Peter Stephens
Gold bullion on a chart

The FTSE 100’s market crash over recent weeks could present buying opportunities for long-term investors. As such, now may be the right time to focus your capital on undervalued stocks, rather than purchasing Bitcoin or gold.

Certainly, the FTSE 100 could experience a period of high volatility in the near term that causes paper losses for investors. But its past recoveries from bear markets may mean that capitalising on its current low price level leads to relatively high returns in the coming years.

Buying opportunities

The FTSE 100’s track record shows it continually switches from bull markets to bear markets, and vice versa. In other words, it’s a cyclical index that neither experiences booms nor busts in perpetuity.

As such, investors should adopt a logical approach. They should seek to profit from FTSE 100 shares, buying when they offer wide margins of safety. Those instances nearly always occur when the world economy faces a major challenge.

Currently, coronavirus is expected to cause a period of decline in the short run. However, ignore news flow. Instead, look ahead to the likely recovery. That means the FTSE 100 can lead to your portfolio experiencing strong capital growth.

Clearly, that process is easier in theory than it is in practice. However, aim to buy companies with strong balance sheets and track records of having survived previous economic difficulties. That way you can maximise your returns and minimise your risks.

Bitcoin appeal

Of course, investors may be tempted to buy Bitcoin at the present time. They may determine the FTSE 100’s fall means the stock market is set for a very disappointing future. However, Bitcoin doesn’t have a long track record of recovery as per the FTSE 100.

In other words, Bitcoin’s progress could be interrupted by factors such as regulatory risks, competition from other virtual currencies, and its limited size.

By contrast, the FTSE 100 seems likely to deliver a recovery. Fiscal and monetary stimulus aimed at supporting the world economy’s prospects could lead to a return of rising profitability across a range of sectors.

Gold’s price rise

Meanwhile, some investors may decide to buy less risky assets such as gold. Its track record as a defensive asset has helped its price to rise to a seven-year high in 2020. Further gains cannot be ruled out in the short run. But the appeal of gold may decline should investor sentiment towards the world economy’s prospects improve.

Furthermore, buying any asset when it’s trading at a relatively high price may prove to be an unprofitable move. Especially while the FTSE 100 appears to offer excellent value for money.

Market timing

The amount of time it’ll take for the FTSE 100 to recover from its current downturn is a known unknown. Previous bear markets have varied in their length and severity. However, it’s very likely a bull market will follow the current bear market.

So, it could be a good idea to buy FTSE 100 shares while they offer wide margins of safety, rather than to wait for a recovery to take hold and prices to move higher.

The post Forget gold and Bitcoin. I’d buy crashing FTSE 100 shares before it’s too late appeared first on The Motley Fool UK.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Motley Fool UK 2020