Following the recent 2020 market crash, some investors may feel that buying shares to retire early is unlikely to be a sound strategy. After all, shares have displayed a significant amount of volatility, and in many cases, prices are substantially down on where they started the year.

However, low valuations on offer across the share market could provide bargain share buying opportunities for long-term investors. Equities have a solid track record of recovering from their very worst declines. As such, through buying a diverse range of shares now, you could improve your capacity to retire early.

Capital growth potential

The past performance of the share market shows that it has outperformed many other mainstream assets over the long run. For example, its high single-digit annual returns are greater than the returns of other assets such as cash and bonds. Therefore, the shares market has historically been a sound place to invest for anyone seeking to build a nest egg to retire early with.

The downside of buying shares is that they are also riskier than other assets. And they can display significant amounts of volatility at times. However, those periods of decline can present buying opportunities for long-term investors. They enable you to buy high-quality shares when they offer wide margins of safety. As such, they could offer even greater returns than the market average over the long run, enabling them to make a bigger impact on your portfolio’s performance.

Recovery prospects

When share prices are low, recovery may seem highly unlikely. However, the share market has a strong track record of overcoming even its most challenging periods.

For example, during difficult periods such as the tech bubble and the financial crisis, many investors are likely to have felt that a market rebound was highly improbable. News regarding the economy was downbeat, and there were significant risks facing many companies and industries.

However, the share market went on to post fresh record highs after those bear markets, as well as every previous bear market. As such, while a recovery may not have seemed likely over recent months, there is a high probability the share market will follow its long-term path and new record highs in the coming years.

A long-term opportunity

Even if the share market takes years to recover, it can still help you achieve your plans to retire early. Many investors have a long-term time horizon and are not planning to retire over the next few years. As such, they are likely to have sufficient time for their holdings to recover from present economic difficulties.

Therefore, through buying strong businesses at bargain prices today and holding them for the long run, you can benefit from the shares market’s growth potential. This strategy could increase the size of your nest egg and allow you to retire early.

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• Why I’m desperate to add CSL and 2 other ASX shares to my portfolio in 2020
• ASX 200 up again, ASX retailers make big gains

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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