The FTSE 100 has rebounded from its market crash, but has not yet fully recovered. Risks such as a continued rise in coronavirus cases and political uncertainty in the US and Europe appear to be holding back investor sentiment.
However, over the long run a recovery seems likely. The index has always rallied in the years following even its most severe bear markets.
As such, now could be the right time to buy bargain shares. They may produce high returns that allow you to profit from a recovery.
Buying bargain FTSE 100 shares after a market crash
The FTSE 100’s market crash means that many stocks have traded at exceptionally low prices over the past few months. Since the index continues to trade down on its 2020 starting price, there appear to be many bargain shares still available for long-term investors.
Of course, in the short run there could be further volatility ahead for many of them. Industries such as banking, retail and travel could experience a period of difficult trading conditions that weakens profitability in the current year, as well as over the medium term. Furthermore, risks such as the US election, Brexit and the potential for a rise in coronavirus cases as lockdown measures are eased could keep investor sentiment in check.
However, over the long run a strategy of buying bargain FTSE 100 shares is likely to be successful in generating high returns. The index has a solid track record of recovery that suggests it will post a sustained market rally that recovers all of the ground lost in its market crash.
Managing risks
Since the FTSE 100 faces an uncertain short-term outlook, diversifying across a wide range of businesses and sectors could be a sound move. It will reduce your dependency on a limited number of companies to produce your returns at a time when the prospects for many businesses are very uncertain.
Furthermore, investing in companies that have solid track records of surviving economic downturns, and even profiting from them, could reduce your overall risks. Some businesses may have the financial firepower to purchase their peers at bargain prices. This could extend their market share and lead to higher profit growth as the economic recovery takes hold. Therefore, they may be less risky and more rewarding for investors over the coming years.
Awaiting a recovery
Waiting for the FTSE 100 to recover from its 2020 market crash may prove to be a frustrating task. In the past, the index has varied in terms of how long it has taken for it to make up lost ground following bear markets.
However, investors who are patient and can take a long-term approach could be among the major beneficiaries of the index’s recent market crash. They may be able to use short-term risks to their advantage in building a portfolio of bargain shares that can enjoy a strong recovery in the coming years.