The stock market crash appears to have pushed some investors away from UK shares and towards less risky assets such as gold and Cash ISAs.
In the short run, this could prove to be a sound move. Indexes such as the FTSE 100 and FTSE 250 face uncertain futures that could produce paper losses for investors.
However, in the long run, a portfolio of stocks is likely to outperform less risky assets. Therefore, with share prices currently low, now could be the right time to focus your portfolio on the stock market.
Reducing risks after the stock market crash
It’s natural for any investor to feel cautious about equities after the stock market crash. The FTSE 100 continues to trade around 20% lower than it did at the start of the year, while the economic outlook is very uncertain. As such, a second downturn could realistically take place in the coming months.
Furthermore, seeking to avoid potential losses from a challenging stock market outlook is also normal behaviour. This has led many investors to sell stocks to buy gold in recent months, or to reduce risk even further by using a Cash ISA.
Gold has a long history as a defensive asset, being a store of wealth in previous downturns. Meanwhile, Cash ISAs come with no risk of loss. For some investors, this may make them attractive after the stock market crash despite their exceptionally low rate of returns.
While gold and Cash ISAs may reduce the prospect of losses in the coming months from a second stock market crash, they may also mean investors fail to capitalise on low valuations among UK shares. At the present time, many high-quality British stocks trade at prices significantly below their historic averages.
In some cases, their valuations don’t fully reflect their growth prospects or their financial situations. As such, they could offer improving share price performances in the long run.
Certainly, a recovery doesn’t seem all that likely at the present time. Economic data is mixed, while political risks are high owing to Brexit and the US election. However, the track record of the stock market shows it has always recovered from its declines to post new record highs.
It can take many years for this process to take place after a stock market crash. But investors with a long time horizon are likely to have sufficient time available to benefit from an improving economic outlook and strengthening investor sentiment.
Therefore, while buying UK shares after the stock market crash may not feel like the right move, it could lead to impressive returns in the long run. Over time, they could produce higher returns than gold or Cash ISAs that improves your financial situation.
A Top Share with Enormous Growth Potential
Savvy investors like you won’t want to miss out on this timely opportunity…
Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).
Not only does this company enjoy a dominant market-leading position…
But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!
And here’s the really exciting part…
While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.
That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.
Views expressed on the companies mentioned in this article are those of the writer and therefore may 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 considering a diverse range of insights makes us better investors.
The post Forget gold and Cash ISAs! I’d buy cheap UK shares after the stock market crash appeared first on The Motley Fool UK.