Buying UK stocks after a stock market crash
A 20% drop in UK equity valuations could lead some investors to doubt their future prospects. However, undervalued stocks could prove to be a buying opportunity for long-term investors. In many cases, high-quality companies with a strong financial position and competitive advantages over their peers are trading at low prices due to low investor sentiment towards the broader stock market. Therefore, they can be significantly undervalued. It’s simply because investors are more risk averse than they were earlier this year.
Over the long term, history suggests that stock valuations will recover from their recent declines. They have previously moved towards their averages as the economic outlook and investor sentiment has improved following bear markets such as the global financial crisis. Investors who are able to look past short-term risks such as Brexit and the coronavirus may be able to earn impressive capital returns as the stock market recovers.
Purchase of Bitcoin following its recent gain
As mentioned, Bitcoin has significantly outperformed UK stocks in 2020. However, after rising nearly 50%, investors have no way of determining whether the virtual currency offers good value for money. It does not have basic principles to indicate whether it offers a margin of safety. Therefore, investors need to consider whether sentiment will improve or deteriorate in the future.
With Bitcoin facing competition from other currencies, regulatory risk, and limited size, its outlook may be more difficult than its current price suggests. As such, it might not continue to increase in the years to come. Also, his past performance has shown that feeling can change quickly and for no clear reason. Therefore, it can prove to be a risky asset to own – especially for investors looking to build a retirement portfolio.
Stock market retirement prospects
Although UK stocks are also exposed to risk at the moment, their fundamentals suggest that they offer wide margins of safety in many cases. In addition, indices such as the FTSE 100 have a long history of total annual returns that sit at a high number.
This means that investors with a long time horizon can achieve a relatively resilient rate of growth. Over time, this could realistically improve their financial outlook and even increase their chances of retiring early.
The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations that we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of information makes we are better investors.