After the recent stock market crash, many UK shares in the FTSE 100 and FTSE 250 appear to be trading on low valuations. Although there’s scope for them to move even lower in the short run due to an uncertain economic outlook, over the long term they have the capacity to deliver high returns.
Through identifying the most attractive stocks today, you could improve the performance of your portfolio. Doing so may increase your chances of making a million over the long run.
Buying after a stock market crash
Purchasing shares after a stock market crash can be a difficult task for any investor. Fear across the market is generally high. Risks, such as the potential for a rise in coronavirus cases, may remain in place over the coming months. This could limit the returns available over the near term, and even cause paper losses for investors.
However, the past performance of indexes such as the FTSE 100 and FTSE 250 suggests that now could be the right time to buy the best UK shares. They may offer good value for money in many cases, which could lead them to produce higher returns in the coming years than they have done in the stock market’s recent past.
With the FTSE 350 having a solid track record of recovering from all its previous downturns, it’s likely to do likewise following its recent market crash. This process may take time. But through buying now while wide margins of safety may be on offer, it could be possible to produce impressive capital growth as the world economy’s prospects improve.
Identifying the best UK shares
Clearly, buying high-quality companies after a market crash is a sound move. They’re likely to survive the current economic woes, and capitalise on a subsequent recovery. They may even be able to strengthen their market positions over weaker rivals to generate higher profitability in the coming years. Therefore, they could offer lower risks and higher return prospects relative to other companies operating in the same industries.
Identifying high-quality companies can be done by assessing their balance sheets. Low debt levels and large cash piles suggest they may have the financial means to overcome a period of weakness for the world economy. Similarly, companies with unique products, low fixed costs, and other attributes such as a strong brand and exposure to sectors that may benefit from changing consumer trends could be relatively attractive.
Through focusing your capital on FTSE 100 and FTSE 250 shares that can produce improving financial performances while they’re trading at low price levels, your portfolio may experience a relatively fast pace of growth. Over time, it could lead to an improvement in your financial position, and even help you reach that seven-figure portfolio.
The post Why buying the best UK shares after the stock market crash can help you make a million 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