The performance of UK shares has significantly lagged Bitcoin in 2020. While the FTSE 100 has fallen by around 20% this year, the virtual currency has gained almost 50% since the turn of the year.
However, recent performances don’t necessarily reflect future prospects. With many high-quality shares trading at low prices, now could be the right time to build a diverse portfolio of British shares. Over time, they could outperform Bitcoin, while offering less risk than the cryptocurrency.
Buying UK shares after a stock market crash
A 20% fall in the valuations of UK shares could lead some investors to doubt their future prospects. However, undervalued shares could prove to be a buying opportunity for long-term investors. In many cases, high-quality companies with solid financial positions and competitive advantages over their peers are trading at low prices due to weak investor sentiment towards the wider stock market. Therefore, they may be significantly undervalued. That’s simply because investors are more risk averse than they were earlier this year
In the long run, history suggests that stock market valuations will recover from their recent declines. They have previously moved towards their averages as the economic outlook and investor sentiment have improved following bear markets such as the global financial crisis. Investors who are able to look beyond short-term risks such as Brexit and coronavirus may be able to obtain impressive capital returns as the stock market recovers.
Purchasing Bitcoin following its recent gain
As mentioned, Bitcoin has significantly outperformed UK shares in 2020. However, after its near-50% rise, investors have no way of determining if the virtual currency offers good value for money. It has no fundamentals to provide guidance on whether it offers a margin of safety. Therefore, investors must take a view on whether sentiment will improve or deteriorate in future.
With Bitcoin facing competition from other currencies, regulatory risks and a limited size, its prospects may be more challenging than its current price suggests. As such, it may fail to continue to rise in the coming years. Furthermore, its past performance has shown that sentiment can change quickly and without clear reason. Therefore, it may prove to be a risky asset to own – especially for investors who are seeking to build a retirement portfolio.
Stock market retirement prospects
Although UK shares also face risks at the present time, their fundamentals suggest they offer wide margins of safety in many cases. Furthermore, indexes such as the FTSE 100 have a long track record of delivering annual total returns that are in the high-single digits.
This means that investors with a long time horizon can obtain a relatively resilient growth rate. Over time, this could realistically improve their financial outlook and even increase their chances of retiring early.
The post Forget retiring early with Bitcoin! I’d buy UK shares after the stock market crash appeared first on The Motley Fool UK.
More reading
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.
Motley Fool UK 2020