The stock market crash has caused a large number of UK shares to trade at low prices. Indexes such as the FTSE 100 currently trade over 20% down on their levels since the start of the year.
As such, there may be a rare opportunity to buy high-quality companies at low prices. Certainly, they may not produce quick recoveries due to ongoing risks such as Brexit and the coronavirus pandemic. But over the long run, purchasing undervalued stocks could lead to high returns that improve an investor’s retirement prospects.
Opportunities arising out of the 2020 stock market crash
The 2020 stock market crash has not been a one-off event for UK shares. The FTSE 100, for example, has experienced numerous declines and bear markets during its history. However, periods of low stock prices do not come along all that often. The most recent sustained bear market prior to 2020 occurred as a result of the global financial crisis over a decade ago. This prompted a 50%+ fall in the FTSE 100’s price level that left many companies trading at low price levels.
In the following years, the index experienced a recovery that saw its price level more than double. As such, investors who took advantage of temporarily low stock prices following the 2009 bear market are likely to have benefited in the long run.
The FTSE 100 has always recovered from declines experienced as a result of a stock market crash to post new record highs. This suggests that it is likely to not only reverse its 20%+ decline since the start of the year, but also reach a new all-time high over the long run. Therefore, now could be an opportune moment to buy undervalued UK shares that have not yet recovered from this year’s market downturn for the long run.
Building a retirement portfolio
Of course, the prospect of a second stock market crash means that the short-term outlook for UK shares continues to be uncertain. However, investors who have a long time horizon and who are planning for retirement are likely to have sufficient time for their portfolios to recover from short-term challenges along the way
Clearly, it is crucial to diversify among a wide range of companies within any investment portfolio. It remains unclear which sectors will produce the most attractive returns over the coming years due to ongoing economic and political uncertainties. Similarly, some regions may be more heavily impacted by political and economic factors than others.
By having a spread of businesses within a portfolio, an investor can reduce risk and also benefit more fully from a likely recovery in the prices of UK shares following any future stock market crash. This could improve their retirement prospects and help them to achieve a greater sense of financial freedom in older age.