It’s fair to say the current stock market crash has caught many investors by surprise. However, the crash has also thrown up some fantastic bargains for patient investors who are willing to take a long-term outlook.
With that in mind, here are some thoughts on where I would invest a lump sum of £10,000 in the current market.
Stock market bargains
After recent declines, swathes of the market now look to be dirt-cheap. Nevertheless, some companies are going to be better investments than others. Indeed, as of yet, we don’t know how badly the coronavirus outbreak will hit the global economy.
A protracted economic downturn could cause a wave of corporate bankruptcies. As such, investors need to be careful where they look for bargains in this stock market crash.
Defensive companies, which provide a critical service such as utilities, or businesses that sell consumer staples, would be the best investments in this environment.
For example, food retailer Tesco and global consumer goods giant Unilever might suffer a dip in sales in the short term, but over the long run, these companies should be able to maintain their leading competitive advantages.
Meanwhile, defensive utility businesses, such as United Utilities and National Grid, should continue to produce a steady income stream for shareholders. Consumers can cut back on discretionary spending, such as eating out and buying clothes, but it’s more difficult to cut back on water and electricity.
Buy the market
Another strategy investors could use to make the most of the stock market crash is buying the market. Buying a low-cost index tracker fund is an easy way to bet on the market without having to pick stocks.
Buying an FTSE 100 tracker, for example, would give you exposure to a basket of 100 of the world’s largest companies at the click of a button. The index currently supports a dividend yield of more than 5% after the recent decline. Before the recent crash, over the past three-and-a-half decades, investors had booked a return of 9% per annum.
Tracker funds for other indexes are also great options. My favourite is the FTSE All-Share. This fund tracks the performance of the approximately 600 companies that make up the FTSE All-Share Index.
Time to start investing
I’m using a combination of the two strategies above to invest. On the one hand, I am adding to the holdings of my favourite investments at attractive prices.
At the same time, I’m making the most of my Stocks and Shares ISA allowance for the year and boosting my holdings of the FTSE All-Share. This should allow me to benefit from the market’s recovery. I can also pick up a steady income stream along the way.
The FTSE All-Share yields around 4.6% after recent declines. That’s far more than the average savings account offers after the latest interest rate cut.