Buying cheap stocks after the recent market crash may appear to be a risky move. After all, the stock market could move lower in the short run, should there be a second wave of coronavirus, or if its impact on the world economy’s growth rate is greater than expected.
However, the chances of a market rebound and long-term recovery seem to be high. As such, now could be the right time to avoid other assets, such as gold and Bitcoin. Instead, purchasing cheap stocks while they offer wide margins of safety could increase your chances of retiring early.
With the stock market having experienced a hugely challenging period over recent months, it’s unsurprising investors may be considering purchasing other assets, such as Bitcoin and gold, rather than cheap stocks. Their prices have outperformed the wider stock market over the past few months. And this trend may continue in the short run.
Gold, for example, has historically offered defensive appeal as it’s viewed as a store of wealth by many investors. However, its price level is currently close to an all-time high. Therefore, there may be less scope for capital growth than there has been in the past. And, with investor sentiment towards riskier assets such as cheap stocks likely to improve over the coming years, gold may fail to maintain its recent momentum over the long run.
Bitcoin, meanwhile, has surged higher following its falls in the earlier part of 2020. Investors seem to be attracted to its diversification potential. However, with Bitcoin’s price determined solely by investor sentiment, it could offer a highly volatile outlook.
It may also suffer from regulatory risks, while other virtual currencies could become increasingly popular and reduce demand for Bitcoin. As such, it offers a high-risk outlook compared to cheap stocks. And that may make it unsuitable for investors who are seeking to build a retirement nest egg.
Buying cheap stocks
By contrast, buying cheap stocks today and holding them for the long run could be a sound strategy for anyone who’s looking to retire early.
The track record of the stock market shows it’s been able to successfully recover from every one of its past crises and, in doing so, has posted new record highs.
Although the prospect of this taking place may seem unlikely at present while news flow is negative, investors with long-term time horizons are likely to have sufficient scope for the stock market to deliver a successful turnaround after its recent crash.
Therefore, buying a diverse range of high-quality companies while they trade at low prices could improve your retirement prospects. As well as cheap stocks, the stock market offers diversification potential and income appeal. That could further improve your portfolio’s risk/reward ratio, compared to other assets such as Bitcoin and gold.
The post Forget gold and Bitcoin. I’d buy cheap stocks in this market rebound to retire early appeared first on The Motley Fool UK.
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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