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.
