The stock market crash has caused many UK shares to trade at low prices. It’s also prompted dividend cuts across the FTSE 100 and FTSE 250. They may dissuade many potential investors from seeking to build a retirement nest egg that’s made up of UK shares in order to produce a passive income in older age.
However, over the long run, UK shares are likely to not only recover from their cheap current prices, but are set to resume dividend payouts in the coming years. As such, now could be the right time to buy a selection of them for the long run.
Recovery prospects after a market crash
The 2020 market crash came as a surprise to most investors. However, the reality is that such downturns have been a feature of the stock market since it was first formed. It’s always experienced sudden, sharp falls that have been followed by a slower return to previous highs.
For anyone aged 50, or who has a decade or more left until they will retire, there’s likely to be sufficient time for UK shares to recover from their current low prices. For example, the FTSE 100 halved in the global financial crisis before experiencing a bull run that lasted for more than a decade. Investors who buy stocks after a decline, and hold them for the long run, generally benefit from the stock market’s recovery potential.
Therefore, even if more volatility is ahead after the market crash, in the long run UK shares are likely to be a sound means of producing a retirement nest egg. Buying them now at low prices could improve your chances of enjoying financial freedom in older age.
Passive income potential
As well as their capital growth potential, UK shares also offer long-term income opportunities, despite the market crash. Certainly, fewer FTSE 100 and FTSE 250 companies are now paying dividends than was the case at the start of the year. However, over the coming years an improving economic outlook is likely to mean that dividends return on a wider basis across the stock market.
As such, buying a diverse range of companies now, and holding them in the long run, is likely to mean that you enjoy a growing passive income by retirement. And, with the stock market having historically offered a superior income return to other assets, such as cash and bonds, it could continue to provide a generous income return in the long run on a relative basis.
Buying stocks after the market crash may mean lower dividends and volatile capital returns in the short run. But over the long run, the stock market appears to offer considerable total return potential. Therefore, now could be the right time to buy a selection of UK shares while they are priced at bargain levels.