The FTSE 100 hasn’t yet recovered from the stock market crash. In fact, the index currently trades around 20% lower than it did at the start of the year. As such, many of its members could offer good value for money.
Investing money in them may not produce impressive returns in the short run, due to ongoing economic risks. However, investors with a long time horizon can currently access low valuations for high-quality businesses that could improve their prospects of retiring early.
FTSE 100 recovery from a stock market crash
It may take months or even years for the FTSE 100 to recover from the 2020 stock market crash. However, a return to previous record highs that saw the index almost reach 8,000 points are very likely.
Its past performance shows that while it can lose as much as over 50% of its value in a short space of time, it also has a strong track record of recovery.
The most recent example of this was the global financial crisis. The index declined by over 50% in 2008/09. It took the FTSE 100 almost five years to return to its previous highs.
Investors who purchased stocks when the index was trading at a low ebb both during and in the immediate aftermath of the global financial crisis may therefore have generated high capital returns as the index recovered.
The FTSE 100 also experienced a notable stock market crash in the early 2000s, as well as in 1987. Again, it recovered from both events in a matter of years. This suggests that buying stocks while they trade at low price levels in the aftermath of a sharp decline, and holding them for the long run, can lead to relatively high returns.
Investing money in cheap shares today
Investing money in FTSE 100 shares after the 2020 stock market crash is unlikely to be an easy task for most investors. There are many risks that could derail the index’s recovery over the coming months. They include, but are not limited to, Brexit and the coronavirus pandemic. As such, investors may find that today’s cheap shares could become even cheaper over the coming months.
Investors who have a long time horizon could benefit greatly from buying high-quality businesses while they trade at low prices. Through focusing your capital on companies with solid balance sheets, a competitive advantage and a strategy that remains flexible in a time of rapid change, you could obtain market-beating returns as the FTSE 100 recovers.
In fact, the stock market crash could even improve your long-term financial outlook. It provides an opportunity to buy undervalued shares so you can benefit from their likely recovery as the prospects for the world economy improve. Doing so could lead to an earlier retirement than you’d previously expected.