A stock market crash is a weird thing. In one respect, it hurts like hell. Nobody likes to see the value of their portfolio fall 20% in a matter of days. In another respect, it is a massive opportunity to buy your favourite FTSE shares at reduced prices.
If you are investing for the long term, you don’t need to worry too much about the first part. History shows that stock markets always recover from a crash, often faster than you think. You should therefore seize the chance to buy more shares at a discount.
This year’s unprecedented turmoil could be a once-in-a-lifetime opportunity to build wealth for your retirement by purchasing top FTSE 100 shares at reduced valuations. Despite the recovery in April and May, the index is still around 20% down on the start of the year.
If we get a second stock market crash, as fears of a second Covid-19 wave rumble on, you could have an even better opportunity.
Naturally, I’d rather the pandemic never happened, the global economy was booming, and the FTSE 100 was testing 9,000 rather than 6,000. Then we would all feel a lot richer. Sadly, I have no say in these things. None of us do. All we can do is deal with the situation as it presents itself.
Stock market crash opportunity
This has been a grim year for investors. Share prices have fallen sharply and almost half of the companies on the FTSE 100 have dropped dividends. Companies in stricken sectors such as travel, entertainment, and hospitality have seen their share prices fall by as much as three quarters.
Investors also have to face up to the fact that share prices have been propped up by massive fiscal and monetary stimulus. Without that, the stock market crash would not have ended on 23 March – it would have worsened as liquidity dried up.
Central bankers and politicians are acting as a backstop for share prices. They do not want to deal with the havoc a full-scale crash would bring. Investors know this, which is why they raced to buy shares in April and May.
This gives you some security when taking advantage of the stock market crash to buy your favourite FTSE 100 shares. Your aim, as always, should be to hold them for the long term. That means at least five years, ideally, 10, 20, or 30. Over such a lengthy period, even the current crisis will look like a blip.
FTSE 100 shares will benefit from a recovery
I recommend seeking out companies with steady earnings, a firm ‘moat’ against competitors, healthy balance sheet, strong cash position, and minimal debt. That should help them stand firm if we get further volatility.
The worst may be over. The Bank of England has been talking up a V-shaped recovery. If it is correct, share prices could fly from here. Trillions of dollars of global stimulus will wash through stock markets and the crash will become a bad memory.
You can benefit from this scenario by investing in shares today. Opportunities like this won’t come along often in your investment lifetime.
