The appeal of UK shares may have declined in recent months. The stock market crash has left many investors feeling cautious about the prospect of buying FTSE 100 and FTSE 250 stocks, with risks such as coronavirus and Brexit weighing on sentiment.
However, in the long run, buying bargain stocks today could lead to significant profits for investors. Low valuations and improving growth prospects may combine to produce higher capital returns than those available from other assets, such as gold and Bitcoin, in the coming years.
The future for UK shares
It’s impossible to know how UK shares will perform in future. However, while history never repeats itself perfectly, it can provide guidance on how the long-term prospects for indexes such as the FTSE 100 and FTSE 250 will pan out.
Both indexes have experienced periods similar to that of 2020 since their inceptions. For example, the FTSE 100 collapsed in the 1987 crash, and recorded some of its biggest daily declines in the process. Other notable declines include the tech bubble and the global financial crisis. Then, investor sentiment plummeted to leave the stock market down over 50% within a matter of months.
However, all of those downturns ended up being buying opportunities for investors in UK shares. Not all companies recovered from their declines. But diverse portfolios of FTSE 100 and FTSE 250 shares have generally survived bear markets, and benefitted from bull markets. While a return to growth isn’t guaranteed following the recent market crash, it seems to be a very likely outcome in the long run.
Changing investor sentiment
For UK shares to move higher after the market crash, investor sentiment must improve. This may naturally take some time after such a rapid fall in valuations across the stock market, as well as the risks that continue to be faced. However, investors are likely to become less risk averse as the world economy’s outlook improves.
This could be bad news for the gold price. It has soared to a record high in recent months, due largely to investor fears about the economy’s outlook. Should investors become less fearful, which seems likely in the coming months, the gold price may experience lower demand. That makes further price rises from the current level more challenging. Similarly, investor sentiment towards Bitcoin could come under pressure. This could be due to factors such as regulatory risks and its limited size. This would make its replacement of traditional currencies less likely.
Although it may take time for investor sentiment to shift from risk aversion to being more positive about risky assets such as UK shares, history suggests this outcome is very likely. Therefore, buying a range of FTSE 100 and FTSE 250 stocks today while they offer good value for money could be a more logical approach to building your wealth than buying gold or Bitcoin.