Many shares have rebounded after the recent stock market crash. This may cause some investors to feel that it is now too late to make a significant profit through buying equities, and that they should invest elsewhere to make a million.
However, some industries continue to offer wide margins of safety. Furthermore, the long-term recovery potential offered by the world economy, as well as the stock market’s past performance, could mean that now is the right time to buy a diverse range of shares to increase your chances of making a million.
Low valuations after the market crash
The stock market crash caused a wide range of shares to decline in value. While some of them have rebounded, a great many businesses continue to face an uncertain future. As such, their market valuations may be significantly lower than their historic averages in some cases.
This could present a buying opportunity for long-term investors. Certainly, sectors such as energy and retail could face continued challenges in the coming months as a weak economic outlook weighs on their prospects. However, through buying financially-sound businesses when their share prices include a wide margin of safety, you could generate high returns as they recover in the coming years.
Of course, the threat of a second stock market crash means that diversifying across multiple companies and industries is paramount to limit overall risk. Through building a diverse portfolio, you may also be able to access growth opportunities in a wider range of industries, which may further improve your portfolio’s prospects.
Economic growth potential
While the economy’s weak outlook may prompt a second market crash, its past performance suggests that it is likely to deliver a recovery over the long run. Certainly, there have been some major recessions over past decades. However, the world economy has never been in a state of permanently negative growth.
Therefore, a return to more favourable operating conditions seems likely for the vast majority of businesses. With monetary policy being very accommodative in many of the world’s major economies, and fiscal policy tools being used to stimulate a recovery, now could be the right time to buy stocks while they do not reflect the prospects of improving economic performance in the coming years.
Stock market track record
Many share prices may have rebounded from the recent market crash, but history suggests that a rally is set to follow the current period of uncertainty. Previous bear markets have often taken many months, and even years in some cases, to give way to a sustained bull market that can produce new record highs.
Therefore, with the stock market crash still being a recent event, investors can look ahead to likely growth from share prices. Over time, new record highs are likely to be made by indices such as the S&P 500 and FTSE 100, which could improve your chances of making a million.
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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.
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