Now could be the perfect time to start investing in FTSE 100 shares to improve your retirement prospects. An uncertain outlook for the world economy means that many of the index’s members trade on low valuations compared to their historic averages. This could mean that they offer relatively impressive return prospects over the coming years.
Furthermore, the options available to anyone who is looking to build a retirement portfolio from scratch are somewhat limited. Low return prospects for cash and bonds, as well as challenges in the housing market, mean that other mainstream assets may lack appeal.
As such, now could be the right time to buy high-quality stocks with exposure to fast-growing markets. They may boost your chances of retiring early.
FTSE 100 appeal
The FTSE 100’s performance over the last two decades has been somewhat underwhelming. It has risen by around 12% from the level it reached in 1999. As such, many investors may feel that it lacks capital growth potential.
However, 20 years ago the index was overvalued. It had risen as a result of investor optimism towards the technology sector. This proved to be a false dawn, and a subsequent decline in the index’s performance took place over the following years.
By contrast, today the index seems to be undervalued. Many of its members trade on valuations that are significantly lower than their historic averages, while the FTSE 100’s dividend yield of over 4% is above its long-term average. This means that investors may benefit from a return to its average valuations over the coming years,
Now may also be the right time to buy FTSE 100 shares due to the lack of appeal among other mainstream assets. Cash and bonds, for example, offer exceptionally low income returns in many cases. They may continue to do so as interest rate rises seem to be unlikely over the next 12 months.
Tax changes for buy-to-let investors could mean that obtaining a high net return on property is more difficult. There are also ongoing risks facing the UK economy from challenges such as Brexit, which could lead to weak consumer and business confidence in 2020. Therefore, buying FTSE 100 shares that have international exposure could be a better idea than obtaining buy-to-let investments.
Of course, selecting the best shares within the FTSE 100 is a good idea. Through focusing on a company’s economic moat, growth strategy and financial standing it may be possible to build a portfolio that offers a favourable risk/reward ratio.
Furthermore, buying companies that have exposure to fast-growing markets such as China could be a sound move. Doing so may not produce high returns in 2020, but for an investor with many years left until retirement it could deliver substantial profits over the long run.
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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 2019