Have you got £5,000 or another lump sum you would like to invest? Perhaps you are contemplating the stock market as a vehicle for your savings? This could be a wise idea. Although the stock market has had a volatile run lately, it features a slew of low valuations across its top indices, including the FTSE 100 and FTSE 250.
Uncertainty surrounding the global economic outlook is weighing on financial markets and it is likely this will continue for some time. But depressed share prices could provide a worthwhile opportunity for you to buy cheap FTSE 100 stocks. If you invest them in a Stocks and Shares ISA, you will benefit from its tax-efficient nature and improve your chances of retiring early.
Top-quality stocks
There are many cheap FTSE 100 shares available today offering a chance for you to build your wealth for the long term. Although it may seem like a dangerous time to be buying stocks for your retirement portfolio, that depends on your overall outlook. If time is not on your side and you want to invest for the short term, then I agree, this is not the time to be doing it with FTSE 100 stocks. The coronavirus pandemic is still an issue, global debt is mounting, and geopolitical uncertainty is rife.
However, if you have the time to watch your portfolio grow, then you may not get a better chance. Once the pandemic has been and gone, the financial markets are sure to recover, and the stronger companies will thrive. Those patient investors that bought in at the lows will reap the rewards and look back happily on their decision to buy at this opportune moment. The FTSE 100 contains some of the biggest companies in the UK. Therefore, it suggests more stability than other indices.
Low prices
It is logical to say buy low and sell high, but the reality is never that easy. Buying stocks at low prices usually involves an element of risk, because a stock is not cheap when it is thriving. However, during a period of low investor sentiment, most stocks suffer, which includes the top-quality ones. The key to stock-picking during this time is to choose a company that you are confident will recover. Buying a company when it trades at a discounted price offers the potential for greater long-term returns.
Eventual recovery
Fear is an understandable emotion during times like these. However, you can mitigate that fear by looking for businesses with strong recovery prospects. Top-quality stocks could go the distance and come out of a recession stronger than ever. History has shown us that the stock market has always recovered from bear markets to reach new highs. Those brave investors that invested for the long term during these periods of uncertainty have built generous retirement nest eggs.
Keeping these three reasons in mind will help you grow a passive income in your retirement years. FTSE 100 shares offer a wider margin of safety than businesses in less stable markets and I think they are a good place to invest your £5k.