Buying shares and holding them for the long term is one of the most effective ways to build wealth. Over the long run, shares typically produce returns of around 7%-10% a year – well above the returns on offer from savings accounts.
Is now a good time to start buying shares though, considering the volatility in the markets? Let’s discuss.
Rare investment opportunities
While it may not seem like a good idea to invest when there’s so much uncertainty, history shows that periods like this are often actually a great time to buy shares. When uncertainty’s high – and investors are on edge – there are often attractive opportunities in the market that aren’t available when the market’s rising and investors are relaxed and optimistic about the future.
By buying at low levels during periods of market stress, investors can potentially do very well when market conditions normalise. History shows that those willing to buy during dips and be patient are usually rewarded in the long run.
It’s worth noting that the market has recovered from geopolitical flare-ups like the one we’re experiencing at the moment many times in the past. In recent years, for example, the market has bounced back from the Ukraine war and the Israel/Hamas conflict.
Of course, the current conflict does pose some risks to the economy in the near term – high oil prices could hurt the economy. Taking a five-year view however, the economy and the market are likely to recover.
Lots of stocks are down
In terms of investment opportunities, I’m personally seeing a ton of them right now. Plenty of stocks I follow are 20%, 30%, or more below their 52-week highs, despite the fact that the underlying companies are performing very well and have huge growth potential in the long run.
Check out this name
One stock I believe is worth a look today is Microsoft (NASDAQ: MSFT), one of the largest technology companies in the world. It’s currently trading near $370. Back in November, it was near $550.
From an investment perspective, there are a lot of things to like about Microsoft. For a start, its software is used by businesses across the world so it has reliable, recurring revenues.
Second, it’s one of the largest players in cloud computing. Looking ahead, this industry is forecast to grow by almost 20% a year over the next five years so there’s a lot of growth potential.
As for the valuation, it looks very reasonable. At present, the company’s price-to-earnings (PE) ratio is about 20.
I’ll point out that a lot of UK investors clearly see an opportunity at that valuation. Over the last week, the stock’s been one of the most bought names on AJ Bell.
Of course, there are risks. One issue some investors are concerned about is the company’s spending a lot of money on AI with no guarantee it will pay off.
Microsoft has navigated technology shifts in the past before however. So I think it’s worth giving it the benefit of the doubt and taking a closer look.
It’s worth noting that investors can reduce their risk by buying shares in a range of different companies. Drip feeding money into the market slowly is another smart risk management strategy to consider.
