The recent FTSE 100 crash may have dissuaded investors from buying shares. They may feel that adopting a cautious attitude towards investing is a sensible approach to take given the potential for further falls in the index’s price level.
While that may be the case in the short run, over the long run, the FTSE 100’s valuation suggests it offers a wide margin of safety. Furthermore, the world economy continues to offer an impressive growth outlook over the coming years. And the track record of the FTSE 100 shows it has always bounced back from its challenging periods.
Therefore, today may be the best buying opportunity since the global financial crisis, which was over a decade ago.
Low valuations
The FTSE 100 currently contains a wide range of stocks that appear to trade on low valuations. It is not difficult, for example, to find companies with dividend yields above 5% and price-to-earnings (P/E) ratios under 10. Furthermore, compared to their historic valuations, their current yields and ratings may be highly attractive. Over time, those figures may gradually revert to their averages. This could lead to impressive returns for investors.
Certainly, the valuations of FTSE 100 members could become even more attractive over the short run. But from a long-term investment perspective, there seems to be a significant amount of value available within the index at the present time.
Growth opportunities
Coronavirus is clearly having a detrimental impact on global growth. This trend may persist over the coming months. It appears as though the virus will become more widespread before it reduces in scale.
However, over the long run the prospects for the global economy continue to be relatively impressive. The underlying fundamentals of major economies such as the US, China and India are positive. This could mean that they return to strong growth following the end of the coronavirus outbreak.
Therefore, investors may be able to purchase high-quality stocks that have encouraging growth prospects while they trade at attractive prices.
Recovery potential
It is extremely difficult to accurately predict when the FTSE 100’s performance will improve. However, its track record of recovery from major challenges suggests that a turnaround is likely. This may take months or even years to come along, but investors can prepare for a recovery by purchasing stocks today.
This strategy has been very effective in past bear markets. For example, buying FTSE 100 shares following Black Monday in 1987, as well as after the tech bubble and financial crisis, would likely mean that you have significant profits at the present time. In the coming years, it seems likely that the current downturn will be added to that list, with the index having a strong track record of not only surviving, but recovering from, even its most challenging periods.