Investing in FTSE 100 shares after the market crash may not initially appear to be a sound move for anyone seeking to build a retirement nest egg.
However, the index’s low valuations, its track record of recovery and supportive monetary policies across the world economy could lead to high returns for investors.
With the State Pension age rising and there being doubts surrounding its rate of growth in the long run, investing in large-cap shares today could help you to enjoy a more comfortable retirement.
Low FTSE 100 valuations
The FTSE 100 currently contains a large number of companies that trade on low valuations. In some cases, they are difficult to justify.
For example, many companies have solid balance sheets and resilient track records of growth that suggest they will not only recover from the present economic difficulties, but could go on to produce high rates of profit growth. However, weak investor sentiment towards the stock market means that they trade on low valuations that present buying opportunities for investors with a long time horizon.
Buying such companies today could position your portfolio for growth. Although in the short run valuations could move lower, over the coming years a reversion to their historic averages seems likely as the world economy recovers.
Track record of recovery
The FTSE 100 has an enviable track record of recovery from its most challenging periods. It has experienced numerous declines in its history, and yet has always managed to post new record highs.
Therefore, adopting a buy-and-hold strategy could prove to be a sound move. It allows you to benefit from the index’s growth potential over the long run. This could boost your portfolio returns and lead to a surprisingly large retirement nest egg.
Certainly, the FTSE 100 faces numerous risks in the short run. As well as coronavirus, political risks such as the US election and Brexit could negatively impact on investor sentiment. But, over the long run, its track record suggests that it is very likely to offer annual returns that are significantly greater than those of other mainstream assets.
Stimulus packages
The FTSE 100 was aided in its recovery following the financial crisis in 2008/09 by monetary policy stimulus. Many central banks across the world have announced similar packages in recent months, but in many cases they are on a larger scale than in the past. Some policymakers, such as the Federal Reserve, have also committed to further action should it be required.
Stimulus packages could catalyse the global economy and lead to improving operating conditions for businesses. This may boost the prospects for large-cap shares, and allow them to produce improving levels of profitability that translate into higher share prices. Over time, this could have a positive impact on your retirement nest egg and reduce your reliance on the State Pension.