Should I buy FTSE 100 stocks after this stock market rally or wait for the next market crash?

Buying FTSE 100 stocks when they offer good value for money could be a better idea than trying to predict the future, in my opinion.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Despite the recent stock market rally, FTSE 100 stocks continue to trade at prices below their pre-coronavirus levels. In fact, the index is around 10% down compared to where it was a year ago.

As such, some investors may feel that large-cap shares offer good value for money, as well as capital growth potential.

However, other investors may feel that after a 30% gain for the FTSE 100, it’s better to wait for the next stock market crash. After all, the market has never made permanent gains.

The problem with both of these approaches is they seek to predict the future. Instead, it may be prudent to analyse individual stocks, rather than try to time the market.

The prospects for FTSE 100 stocks

FTSE 100 stocks could realistically experience a fall or a gain in the coming months. On the one hand, the economic outlook is extremely uncertain at the present time. Consumer confidence is weak, while unemployment levels are on the up. This could mean the stock market declines heavily from its current price level.

On the other hand, there’s the stimulus action from the Bank of England. And there are investors who look beyond short-term economic challenges. These may well cause the recent stock market rally to continue. This may also mean the valuations of today’s cheap shares rise on the back of improving investor sentiment.

The challenge for investors in FTSE 100 stocks is that accurately predicting either outcome over the short or long term is extremely challenging. Even if the economy’s future improves from now, investors could become less positive about the stock market for a variety of other reasons that are currently difficult to identify.

Long-term growth opportunities in a stock market rally

While the future for FTSE 100 stocks is always uncertain, its long-term performance is likely to be positive. After all, it has delivered an annual total return in the high-single digits since its inception in 1984. And that’s in spite of experiencing numerous downturns, corrections and bear markets along the way.

Although such a return is by no means guaranteed in future, a long-term investment horizon may help an investor to build a portfolio that’s more likely to produce positive capital returns in a growing stock market environment.

Furthermore, considering each company on its own merits, rather than trying to analyse the index itself, could be a sound move. Not all large-cap shares will move in line with the market, whether in a rally or a crash.

Some companies, for example, may be undervalued at the present time and could outperform the wider market over the long run. Buying a diverse range of them today could help to reduce risk, and capitalise on a likely stock market recovery from its current level in the coming years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

Just released: December’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

£9k in an ISA? Here are 2 FTSE 100 stocks to consider for a juicy second income

There are plenty of quality UK shares to consider when attempting to build a second income. Here are two high-yielders…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

No savings at 40? Just £5 a day invested in FTSE 250 stocks could unlock a £372k ISA

For the price of a coffee, Brits have a chance to build a healthy nest egg for their retirement. Here's…

Read more »

Investing Articles

Can I buy Elon Musk’s SpaceX on the stock market?

SpaceX is hot property and its valuation is surging. Dr James Fox explains how investors can gain exposure to Elon…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

Considering an ISA for retirement? Here’s how investors could aim for £2,000 a month with dividend shares

Our writer outlines how a well-balanced portfolio of dividend shares in an ISA could lead to a decent stream of…

Read more »

Investing Articles

Here’s the BP share price forecast

BP's share price should be higher. That’s what analysts are saying, but things can move quickly in the hydrocarbons and…

Read more »

Investing Articles

Up 53% in 3 months! What’s fuelling the red-hot Burberry share price?

Harvey Jones is whooping it up as the dramatic Burberry share price recovery wipes out most of his losses in…

Read more »

Investing Articles

Should I aim for a million by holding just 10 shares?

Can Harvey Jones aim for a million in his ISA pot by investing in a broad-based portfolio of around 20…

Read more »