Many investors may be avoiding UK shares after the stock market crash. They may feel that the threat of a second downturn means that other assets are more attractive at the present time.
However, the long-term prospects for FTSE 100 and FTSE 250 shares could be relatively positive. Even if there is a market decline over the short run, long-term investors are likely to have sufficient time available to benefit from a recovery. And with risks currently high, many high-quality companies are trading at low prices.
As such, investors with no retirement savings aged 40, or with a long-term view, may be able to capitalise on the stock market’s current low valuation to build a nest egg.
A second stock market crash
Another stock market crash could happen in the months ahead. Political risks are currently high. And the economic outlook continues to be relatively downbeat. As such, it would not be a major surprise to many investors if indexes such as the FTSE 100 and FTSE 250 declined in value.
Of course, such a scenario is not guaranteed. The stock market could remain in its current bull market. Moreover, even if it did decline in the short run, a long-term investor is likely to have ample time to benefit from a likely recovery. Indexes such as the FTSE 100 and FTSE 250 have strong track records of mounting successful comebacks from their previous bear markets.
As such, buying a diverse range of UK shares could be a sound move. Many company valuations appear to factor in the prospect of a second stock market crash. This may enable investors to buy high-quality companies at low prices so that they have greater scope to deliver capital appreciation over the long run.
Investing money in UK shares today
Clearly, the threat of a stock market crash is a perennial risk facing investors. Therefore, it is logical to try and mitigate risks as much as possible.
Simple measures to do so include buying the best UK shares available today at the lowest prices. The most attractive companies are often those with solid financial positions.And they have the highest chance of delivering profit growth in the long run through having a competitive advantage. Similarly, buying a diverse range of shares could limit exposure to one sector or region. At a time when the coronavirus pandemic is ongoing, a mix of companies operating in different areas could prove especially useful.
Yes, a second stock market crash would be likely to produce paper losses for investors. But a diverse portfolio of high-quality companies is likely to deliver impressive returns over the long run. Buying such companies at low prices today could lead to even more impressive returns that have a positive impact on the size of an investor’s nest egg.
The post No savings at 40? I’d buy UK shares today despite the threat of stock market crash part 2 appeared first on The Motley Fool UK.
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