This year’s stock market crash was the fastest in history, by some measures. The subsequent recovery was almost as rapid.
Moments of extreme volatility like these are a fantastic opportunity to buy top FTSE 100 shares, with the aim of building your long-term wealth. By ‘long-term’, I mean forever, ideally. I would rather buy crashing shares today than hide in gold or take a punt on a crypto-currency like Bitcoin. In the longer run, I believe equities are a far better way to build wealth.
You need to be brave to buy FTSE 100 shares in the middle of a share price crash and bear market. Too many head for the supposed safety of gold. The precious metal is up this week as investors get nervous, and now costs $1,736 an ounce. Yet I still wouldn’t buy gold and here’s why.
Why I wouldn’t buy gold
First, gold doesn’t pay any dividends or interest, and never will. That means you are solely dependent on price growth to make a profit. The gold price has climbed 30% in the last year, and is starting to look expensive. It could climb higher, but how far can it really go from here?
The danger is that it could fall sharply, as economic data and sentiment improves. I think some exposure to gold is fine. Maybe 5% to 10% of your portfolio as a cushion against a stock market crash. I wouldn’t buy it at today’s price, though.
I think most investors can live without Bitcoin altogether. I personally have one whole coin, which I’m holding purely for Fear Of Missing Out. In the hugely unlikely event that online hype merchants are right and Bitcoin does hit $1m, I want to be there.
Bitcoin won’t make you rich
I do not think that will happen, by the way. I still struggle to see what Bitcoin can do that traditional financial instruments cannot. Again, I wouldn’t buy at today’s price of $9,467. Yes it could press on beyond $10,000, but given its volatile history you can easily lose half of your money in a matter of weeks.
Of course, that can happen with the FTSE 100, as we saw in the recent stock market crash. I also accept that the subsequent global share price rally was driven by fiscal and monetary stimulus, rather than improvements in the real world economy.
Don’t waste this stock market crash!
The world’s central bankers and politicians are effectively underpinning share prices to prevent the stock market crash getting out of hand.That’s hardly ideal, but it does offer some comfort. Nobody is underpinning gold or Bitcoin in the same way.
FTSE 100 shares are still around 20% cheaper than before this year’s stock-market crash. If you are looking to build long-term wealth in your retirement, this is your opportunity to pick up your favourite companies at reduced prices.
If you are in a position to buy shares, I would start selecting my targets during the market crash, rather than afterwards. Opportunities like this one do not come along very often.