However, in the long term, these companies should be able to return to growth. As such, investors should take a long-term view of the stock market outlook and seek to take advantage of the low valuations available in the FTSE 100 today.
It is impossible to say when the FTSE 100 will stop falling. The market has stabilized over the past week. But we still don’t know what the impact of the coronavirus crisis will be on the global economy.
Some analysts believe that we are just beginning to see what could be a prolonged economic depression. Others are more optimistic. But most economists agree that the global economy will contract this year.
However, the economy has a strong history of recovery, even after the most severe downturns.
Its performance is generally below investor sentiment. Frequently, the FTSE 100 began to recover long before the economy began to show signs of improvement. In other words, if you wait for the economic recovery to start before investing, it may be too late.
This means that buying stocks when their prospects are uncertain may be the best option.
Diversification of the FTSE 100
Since it is impossible to say when the stock market and the economy will recover, it is essential to diversify across a range of FTSE 100 stocks.
Buying and owning a small number of inexpensive stocks can be tempting, but it can be risky. A single loss could mean a big setback for your portfolio. Therefore, owning a basket of FTSE 100 stocks that operate in a variety of geographies and sectors could improve your risk / reward outlook.
High quality dividend stocks seem to be the best options on the market today. Companies like Unilever and Reckitt Benckiser, who manufacture and produce essential products for consumers.
Software Provider sage could also be a good option. The company’s subscription activity provides a steady stream of income and companies will still need to top up their accounts, no matter how severe the crisis.
Rentokil Initial, meanwhile, has seen an increase in demand for its disinfection and deep cleaning services. This helps the constituent of FTSE 100 to get through the crisis, and the management is already planning the exit strategy of the group.
Actions in the oil majors BP and shell are close to the lowest prices of the past decade. However, the two companies are still committed to their dividends, are well funded and have cut costs to improve liquidity.
All of these companies are trading at levels not seen in months. This suggests that now may be a good time for long-term investors to take advantage of these low valuations.
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Rupert Hargreaves owns shares in Unilever and Royal Dutch Shell. The Motley Fool UK owns shares and recommended Unilever. Motley Fool UK recommended Sage Group. The opinions expressed on 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. At The Motley Fool, we believe that taking into account a diverse range of ideas makes us better investors.