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Is the FTSE 100’s rally after the stock market crash a chance to make a million with UK shares?

Peter Stephens
·3-min read
One million celebration illustration.
One million celebration illustration.

The FTSE 100 has rallied 15% in the past two weeks, having fallen by around a third in the 2020 stock market crash.

Despite its recent rise, many UK shares continue to trade at what appear to be cheap levels compared to their historic values. As such, they may offer further scope for capital gains over the long run. Certainly as the economic outlook improves and investor sentiment becomes more bullish.

They may even provide the opportunity to build a portfolio worth in excess of a million. And that could happen as the FTSE 100 likely makes new record highs in the coming years after the challenges it has faced in 2020.

A FTSE 100 recovery after the stock market crash

The FTSE 100 has recovered some lost ground from the 2020 stock market crash in recent weeks. However, it continues to face an uncertain future. Many UK shares are experiencing difficult operating conditions that may persist over the coming months.

Risks such as the coronavirus pandemic and Brexit are likely to remain in place for many months. They could impact negatively on investor sentiment at times. This could mean recent gains come under pressure in the near term.

Despite this, the long-term outlook for many UK shares is relatively positive. The FTSE 100 has a solid track record of recovering from a stock market crash to post new record highs. Furthermore, the scale of fiscal and monetary policy stimulus being undertaken means asset prices could move considerably higher in the coming years. Therefore, investors who purchase today’s undervalued shares after the stock market crash could benefit from a likely recovery in the long run.

Making a million with UK shares

Buying cheap UK shares after a stock market crash has generally been a successful strategy in the past. For example, investors who bought FTSE 100 companies after market downturns such as the 1987 crash, the dot com bubble, and the global financial crisis are likely to have benefitted from their long-term recovery.

As such, while many FTSE 100 stocks have made gains of late, they still trade at prices significantly below their 2019 levels. This may mean an investor can generate market-beating returns over the long run that increases their chances of making a million.

Even obtaining the FTSE 100’s return after the 2020 stock market crash could lead to a surprisingly large portfolio valuation. For example, assuming an 8% total return per year on a £100,000 initial investment would lead to a portfolio valued at £1m within a 30-year time period.

With many UK shares appearing to offer wide margins of safety at present, it may be possible to obtain a higher rate of return. This could reduce the amount of time it takes to make a million in the FTSE 100’s likely long-term recovery.

The post Is the FTSE 100’s rally after the stock market crash a chance to make a million with UK shares? 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