Investing £10k (or indeed, any other amount) in FTSE 100 shares today could be a sound long-term move. Certainly, the index’s recent market crash may return if news regarding coronavirus and its impact on the economy is negative. However, over the coming years many undervalued FTSE 100 stocks could produce strong recoveries.
Therefore, buying a selection of large-cap shares could be a more profitable idea than purchasing other mainstream assets. The index appears to offer a favourable risk/reward opportunity. And this could enhance your long-term financial prospects.
Value opportunities
As well as being cheap, many FTSE 100 stocks appear to offer good value for money. In other words, they trade at prices that do not fully reflect the quality of their balance sheets. Nor do their prices reflect their potential to deliver improving financial performances in the coming years.
As such, now could be the right time to buy them. In some cases, weak investor sentiment towards global equities caused by increased risk-aversion among investors may mean that high-quality businesses offer wide margins of safety.
True, some sectors such as retail and travel & leisure may be severely impacted by coronavirus. But some industries continue to produce strong financial performances. Their incumbents could offer good value for money at a time when investors are seeking to reduce their exposure to stocks due to the prospect of further market volatility.
Furthermore, a number of companies within sectors that are being impacted by coronavirus could offer investment appeal. They have solid balance sheets and wide economic moats in many cases, which do not appear to be fully reflected in their current valuations.
Relative appeal
At the same time as the FTSE 100 appears to offer a number of undervalued stocks, the appeal of other mainstream assets is declining. Investors who wish to generate strong returns in the coming years may find that assets such as cash and bonds fail to meet their requirements. Low interest rates look set to remain in place for many months, and even years. This could lead to below-inflation returns for bondholders and savers.
Likewise, buy-to-let investments may not even be possible at the present time! Social distancing rules mean that property viewings are on hold for now. And many mortgages have been removed by banks and building societies in recent weeks. With tax changes also reducing the net returns available to landlords, now could be the right time to pivot to stocks from buy-to-let properties.
Recovery prospects
Of course, not all FTSE 100 stocks will produce strong recoveries following the recent market crash. Therefore, it is imperative to build a diverse portfolio of companies that, together, can take part in a very likely long-term recovery for the stock market. Investing your cash in a wide range of shares is cost-effective thanks to low online share-dealing costs. Doing so could produce a highly attractive risk/reward opportunity for your portfolio.
