Starting to invest in FTSE 100 stocks after the market crash may seem to be an illogical move. After all, the economic consequences of coronavirus are unclear. They could lead to a severe economic downturn – and even a recession.
However, by investing £500, or any other amount, per month in a diverse range of FTSE 100 shares you could improve your retirement prospects. The index currently appears to offer excellent value for money, as well as recovery potential over the long run.
Time horizon
In the near term, investing in FTSE 100 shares could lead to paper losses. Although the index has fallen significantly since the start of the year, and investors appear to have factored in a challenging economic outlook, things could worsen for the FTSE 100 before they improve.
However, many people who are seeking to build a nest egg for their retirement are likely to have a long-term time horizon. In other words, buying stocks while they trade at low prices is likely to improve their financial outlook. They will be able to purchase high-quality companies while they offer wide margins of safety, and benefit from their likely recovery in the coming years.
Recovery potential
In terms of the chances of a recovery, the FTSE 100’s track record suggests that it is very likely. The world economy has experienced a number of significant recessions in the past that have caused the index to experience severe declines. In some cases, the FTSE 100 has dropped by over 50% in a matter of months, as investors have priced in recessions, and the potential for depressions.
Despite this, the stock market has always been able to recover from its lows to post successful recoveries. For example, it was able to make new record highs in the years following the global financial crisis. As such, it seems likely that it will repeat this pattern. Through buying shares today and holding them for the long run, you can benefit from the index’s likely turnaround.
Buying opportunities
Purchasing FTSE 100 shares is now easier, and cheaper, than ever. Investors can buy £500 of shares on a monthly basis through features such as regular investments. They are available at a wide range of online sharedealing providers, and reduce the cost of each trade to as little as £1.50 in some cases.
Accounts such as Stocks and Shares ISAs help to make investing in FTSE 100 shares more tax efficient. There is no tax levied on any amounts invested/gained within an ISA, while there are also no limits on withdrawals. This makes them highly flexible and appealing to a variety of individuals at different stages in their lives.
Although the FTSE 100 is likely to experience further downturns this year, and in the coming years, its overall trajectory in the long run is likely to be upwards. Therefore, starting to invest for your retirement now could be a highly profitable move.