Buying cheap shares after the market crash could lead to impressive returns in the coming years. Of course, in the short run, other assets such as Bitcoin and gold may prove more popular among investors. However, by taking a long-term perspective on your portfolio’s prospects you could capitalise on today’s low valuations across the stock market.
As such, now could be the right time to invest £10k, or any other amount, in a broad range of UK shares. They could produce relatively high returns as the economic outlook improves.
Short-term versus long-term prospects for cheap shares
In the coming months, some cheap shares could become even more undervalued. Risks such as coronavirus and Brexit are likely to remain in place for a period of time. This could negatively impact on the financial performances of some businesses, as well as on investor sentiment.
As a result, some investors may feel that gold and Bitcoin offer superior investment potential. Gold, for example, may become more popular if the economic outlook worsens. Meanwhile, Bitcoin could experience higher demand from investors who’ve become disenchanted with the performances of indexes such as the FTSE 100.
However, cheap shares could deliver impressive returns over the long run. The past performance of the stock market shows it has always recovered from its various downturns to post new record highs. This outcome may not seem likely at the present time.
But buying stocks before they have risen closer to their intrinsic values could prove to be a sound move. It may lead to higher returns than those available in the coming years from Bitcoin or gold.
Investing money in UK shares today
Clearly, near-term risks mean that simply buying cheap shares may be insufficient when it comes to effectively managing your portfolio. In other words, buying high-quality companies at low prices may be a sound means of overcoming potential risks in the short run. Meanwhile, it could also provide scope for impressive capital gains in the long run.
Furthermore, diversifying across a range of sectors may enable you to generate stronger growth in the coming years. At present, the uncertain economic outlook means it’s difficult to know which sectors will deliver the highest returns for investors.
As such, it’s important to have a broad range of companies that operate in various industries. This may lower your overall risks and allow you to access a larger number of growth opportunities.
While the prospect of cheap shares becoming even cheaper may dissuade some investors from buying them, anyone with a long time horizon is likely to have sufficient time to benefit from their recovery. Therefore, now could be the right time to avoid gold and Bitcoin after their recent gains to buy undervalued UK shares.