The stock market crash has left a wide range of UK shares trading at relatively low prices. In some cases, they may be deserved, due to their weak financial positions or challenging outlooks.
However, increased risk aversion among investors could mean some high-quality companies offer wide margins of safety. Over time, they could deliver impressive returns that help an investor improve their prospects of retiring early.
As such, now could be the right time to build a diverse portfolio of FTSE 100 and FTSE 250 shares for the long run.
Weak investor sentiment after the stock market crash
The stock market crash may have taken place in the first quarter of the year, but investor sentiment continues to be relatively weak. For example, the FTSE 100 trades around 27{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} down in 2020. Meanwhile, the FTSE 250 is currently priced 22{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} lower than it was at the start of the year.
As such, there could be buying opportunities on offer across both indexes. Some companies have valuations significantly below their historic averages. Yet they have solid financial positions and clear competitive advantages over their peers. They could offer good value for money while investor sentiment towards the wider stock market is relatively weak.
Improving prospects for UK shares
Clearly, it could take some time for investor sentiment to fully recover after the stock market crash. However, the past performance of indexes such as the FTSE 100 and FTSE 250 suggests it will return over the long run. Neither index has ever experienced a perpetual decline. Instead, bear markets have been followed by bull markets that have produced new record highs.
Furthermore, the economic outlook could improve over the coming years. Factors such as fiscal and monetary policy stimulus may have a positive impact on GDP growth. This may cause stronger operating conditions for many UK shares that leads to improving investor sentiment.
Building a retirement portfolio
Buying UK shares after a stock market crash has generally been a sound strategy in the past. It’s enabled investors to access lower stock prices that can mean there’s greater scope for capital growth in the recovery phase of the stock market cycle.
However, risks during any period of economic weakness are likely to be relatively high. As such, it’s prudent to select not only the cheapest UK shares available, but those that have the greatest capacity to participate in an economic recovery. They may include financially-sound businesses with access to large amounts of liquidity. They may also include those businesses with a wide economic moat.
Through investing in a diverse range of UK shares while sentiment is weak after the stock market crash, an investor could obtain high returns in the long run. This may improve their financial prospects and increase their chances of retiring early.
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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.
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