Although many stock prices have risen in recent months, a plan to buy shares may still be the best means of earning a million.
A number of high quality companies are currently trading at low prices. This suggests that they could have great leeway for capital growth in the coming years.
In addition, the lack of reward potential available among other common assets may mean that a portfolio of stocks surpasses its peers.
The potential to buy stocks at cheap prices
The uncertain economic outlook has led many stocks to trade at cheap prices. The history of the stock market shows that a plan to buy stocks while offering large margins of security can be hugely profitable. It allows an investor to take advantage of market cycles in terms of buying stocks at low prices and selling them at high prices.
Such a strategy has largely been popular because the stock market has a long track record of recovering itself from the very best falls. For example, indices such as the FTSE 100 were halved during the global financial crisis. But within just a handful of years, they recovered and posted new record highs. Although this result cannot be guaranteed to take place for all shares after the share price in 2020, a probable economic recovery may cause share prices to rise in the coming years.
Relative appeal of shares
While now may be the right time to buy stocks because of their low prices, other assets seem to lack investment appeal. For example, income-producing assets such as cash and bonds now provide disappointing returns due to low interest rates. In addition, the outlook for interest rates means that this situation may persist over the medium term, as decision-makers favor an economic recovery over maintaining low inflation levels.
Similarly, assets such as gold and real estate may lack appeal at present. Precious metals are trading close to a record high, suggesting that there are limited opportunities for capital gains. House prices are also relatively high, which may signal a lack of capital growth potential compared to a portfolio of undervalued stocks.
To earn a million
Earning a million through a strategy that seeks to buy stocks at low prices can be successful in the long run. Although an investor matches the high, single-digit annual returns sent by the stock market in recent decades, an investment of $ 100,000 today can be worth more than a million within 30 years.
But with a probable stock market rally going forward and low valuations being offered, it can be a faster process to make a million on buying stocks right now. Such a strategy can lead to market-beating returns that allow a portfolio to grow at a rapid pace – especially compared to the results of other ordinary assets.
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