Investing £10k, or any other amount, in FTSE 100 shares today may seem like the wrong move. The FTSE 100 has now fallen by around 35% since the start of the year. And further declines in its price level would be unsurprising.
As such, many investors may decide that assets such as bonds, cash and gold hold greater appeal. They are generally considered to be lower risk than shares, and may outperform the FTSE 100 in the short run.
The FTSE 100 now has a large number of quality stocks trading on low valuations, so I think now could be the right time to start investing for the long term.
Asset appeal
The recent drop in UK interest rates means that cash and bonds are likely to offer below-inflation returns in most cases. Yes, they could outperform shares in the coming weeks and months. But over the long run, they could also mean to a reduction in your spending power.
Many investors may argue that the FTSE 100’s continued decline means that it is impossible to find the bottom of the current bear market. However, investors do not necessarily need to find the index’s lowest point before buying shares. At the index’s current level, there are numerous buying opportunities. These could deliver impressive recoveries in the long run. And I know they may decline further in the near term. But long-term investors can position their portfolios so they capitalise on the index’s eventual recovery.
A recovery may not be guaranteed, of course. But the FTSE 100 has always overcome the variety of problems it has faced to post new record highs in the years following its bear markets. Therefore, focusing your capital on equities, rather than lower-risk assets, could be a shrewd move.
Buying opportunities
When buying shares in FTSE 100 companies, focusing on their quality could be a shrewd move. In other words, but established businesses with strong market positions, wide economic moats, modest debt levels and resilient free cash flow. This may significantly reduce your overall risks. Such companies may also be better placed to capitalise on current market conditions. They could win market share from their less financially-sound competitors. And this may strengthen their market positions in the long run.
Furthermore, buying companies with positive growth outlooks beyond the coronavirus outbreak could be a worthwhile move. For example, online retail may continue to grow in the coming years. And healthcare companies could experience high levels of demand in the long run. Financial services companies may benefit the most from a future economic recovery. This really could make their shares relatively attractive at the present time.
Clearly, buying any stock today is a risky move in the short run. But, as history shows, risks are generally high when stocks are priced at their lowest levels. The FTSE 100 has a track record of recovery. This means that now could be the right time to buy a diverse range of high-quality stocks while they trade at low prices.