Investing in stocks after the market crash doesn't seem like a sensible move for anyone looking to build a nest egg for retirement.
However, the index's low valuations, its track record of recovery and supportive monetary policy across the global economy could lead to high returns for investors.
Given the rising age of government pensions and long-term doubts about the growth rate, investing in large-cap stocks today could help you enjoy a more comfortable retirement.
Low FTSE 100 ratings
The FTSE 100 currently contains a large number of companies that trade with low valuations. In some cases, they are difficult to justify.
For example, many companies have solid balance sheets and solid growth data, suggesting that not only are they recovering from current economic difficulties, but that earnings growth rates may continue to be high. However, weak investor sentiment versus the stock market means they are trading low valuations that offer investors with a long time horizon buying opportunities.
Buying such companies today could position your portfolio for growth. Although valuations could decline in the short term, a return to their historical averages appears likely in the coming years if the global economy recovers.
Recovery track record
The FTSE 100 can look back on an enviable success story after the most difficult periods. It has seen numerous declines in its history, yet has always managed to reach new record highs.
Therefore, adopting a buy-and-hold strategy could prove a sensible step. This enables you to benefit from the index's growth potential in the long term. This could increase your portfolio returns and lead to a surprisingly large nest egg for retirement.
The FTSE 100 is certainly exposed to numerous risks in the short term. In addition to the corona virus, political risks such as the US elections and Brexit could have a negative impact on investor sentiment. In the long run, however, the track record suggests that it is very likely to offer annual returns that are significantly higher than those of other mainstream assets.
The FTSE 100 was supported in its recovery after the 2008/09 financial crisis by monetary policy incentives. Many central banks around the world have announced similar packages in the past few months, but in many cases they are larger than in the past. Some policy makers, such as the Federal Reserve, have also committed to take further action if necessary.
Economic stimulus packages could catalyze the global economy and lead to an improvement in operating conditions for companies. This can improve the prospects for large-cap stocks and allow them to achieve improved profitability, which is reflected in higher stock prices. Over time, this could have a positive effect on your retirement nest egg and reduce your dependency on the state pension.
The reasons after 3 why the stock market crash of the FTSE 100 could be your chance to beat the state pension appeared first The colorful fool Great Britain.
Peter Stephens has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The views of the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that taking into account a variety of insights us better investors.
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