Buying crashing UK shares right now may seem to be a risky move. After all, the stock market faces a very uncertain future that includes threats such as a second wave of coronavirus, as well as other challenges such as Brexit and rising unemployment.
However, some of the world’s most successful investors have often decided to buy shares at such times. For example, Warren Buffett prefers to purchase high-quality businesses when they face uncertain near-term outlooks.
In doing so, you can access lower valuations that may produce higher returns in the long run. Over time, this may improve your prospects of retiring early.
Bargain UK shares
Even though some UK shares have rebounded following the market crash, the FTSE 100 and FTSE 250 both trade significantly lower than they did at the start of the year. As such, it appears as though investors are pricing in some of the risks they face that could derail their financial prospects.
Therefore, an opportunity currently exists for long-term investors to purchase high-quality companies at low prices. This plan has been used successfully in the past by Warren Buffett. He often waits for such periods before buying companies. In doing so, he is able to buy businesses that have solid balance sheets and wide economic moats at a discount to what he feels they are worth.
This not only provides an opportunity to generate relatively high returns as UK shares recover, it also potentially means less risk due to the existence of a margin of safety. Therefore, now could be the right time to buy a selection of FTSE 100 and FTSE 250 stocks while investor sentiment is weak and their prices reflect the ongoing risks faced by the world economy.
Short-term investing
Of course, a second market crash could cause the prices of UK shares to fall in the short run. However, in the eyes of investors such as Warren Buffett, this is likely to present an even more attractive buying opportunity rather than a reason to worry. Since the stock market has always recovered from its various bear markets to post recoveries, buying at even lower share prices could mean higher returns in the long run.
Moreover, most investors who are buying shares for their retirement portfolios are likely to have a long-term time horizon. Therefore, a temporary decline in portfolio values is unlikely to have a direct impact on their retirement income – as long as the shares they buy survive a period of economic difficulty. As such, by taking a long-term view and following the advice of successful investors such as Warren Buffett, you can use the recent market crash to your advantage and build an appealing portfolio of stocks that helps to bring your retirement date along sooner than expected.
