Forget gold and Bitcoin. I'd buy cheap stocks in this market rebound to retire early

I think that buying cheap stocks could increase your chances of retiring early due to the stock market's long-term recovery potential.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Buying cheap stocks after the recent market crash may appear to be a risky move. After all, the stock market could move lower in the short run should there be a second wave of coronavirus, or if its impact on the world economy's growth rate is greater than expected.

However, the chances of a market rebound and long-term recovery seem to be high. As such, now could be the right time to avoid other assets such as gold and Bitcoin, and instead purchase high-quality companies while they offer wide margins of safety to increase your chances of retiring early.

Diverse opportunities

With the stock market having experienced a hugely challenging period over recent months, it is unsurprising that investors may be considering purchasing other assets such as Bitcoin and gold. Their prices have outperformed the wider stock market over the past few months, and this trend may continue in the short run.

Gold, for example, has historically offered defensive appeal due to it being viewed as a store of wealth by many investors. However, its price level is currently close to an all-time high. Therefore, there may be less scope for capital growth than there has been in the past. And, with investor sentiment towards riskier assets such as equities likely to improve over the coming years, gold may fail to maintain its recent momentum over the long run.

Bitcoin, meanwhile, has surged higher following its falls in the earlier part of 2020. Investors seem to be attracted to its diversification potential. However, with Bitcoin's price being determined solely by investor sentiment, it could offer a highly volatile outlook. It may also suffer from regulatory risks, while other virtual currencies could become increasingly popular and reduce demand for Bitcoin. As such, it offers a high-risk outlook that may not make it suitable for investors who are seeking to build a retirement nest egg.

Buying cheap stocks

By contrast, buying cheap stocks today and holding them for the long run could be a sound strategy for anyone who is looking to retire early.

The track record of the stock market shows that it has been able to successfully recover from every one of its past crises, and in doing so has posted new record highs. Although the prospect of this taking place may seem unlikely at the present time while news flow is negative, investors with long-term time horizons are likely to have sufficient time available for the stock market to deliver a successful turnaround after its recent crash.

Therefore, buying a diverse range of high-quality companies while they trade at low prices could improve your retirement prospects. As well as cheap stocks, the stock market offers diversification potential and income appeal that could further improve your portfolio's risk/reward ratio compared to other assets such as Bitcoin and gold.

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Cheap Shares

Couple at an airport waiting for their flight.
Cheap Shares

Is Qantas a bargain ASX 200 stock today?

Analysts at Goldman Sachs think the Flying Kangaroo could be dirt cheap.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Cheap Shares

1 secretly cheap ASX 200 stock I'm buying for the long run

The best performer on the index last year has had a poor start to 2024. Let's examine whether this is…

Read more »

A young woman sits on her bed holding a cup of coffee inside her recreational vehicle hired through the Camplify website
Cheap Shares

3 struggling ASX shares to buy at a discount

These stocks are down temporarily because of temporary issues. This could be a golden opportunity to buy cheap.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 'materially undervalued' ASX 200 shares to buy while they're at 'attractive value'

Is there a better feeling in investing than grabbing stocks for cheap then watching while everyone else catches on to…

Read more »

Five happy young friends on the coast, dabbing and raising their arms in the air.
Cheap Shares

5 oversold ASX shares to buy in March 2024

Will you get 'em while they're cheap?

Read more »

Rocket takes off from the hand of a businessman.
Cheap Shares

11% yield? 2 strikingly cheap ASX shares 'primed for recovery'

Discounted stocks are sometimes a value trap, but experts reckon this pair is ready to soar again.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Cheap Shares

1 top ASX bargain stock that's ready for a bull run!

The market savaged these shares during reporting season, but multiple experts are bullish for the years to come.

Read more »

Three young women on holidays smile at they look at a map.
Cheap Shares

Long-term investing: 3 top ASX stocks you can buy for under $20 a share

These shares don't cost the earth to add to the portfolio, but all represent businesses going places.

Read more »