Global stock markets rallied on Monday amid hopes of the coronavirus outbreak beginning to slow. An investor’s first thought might therefore be: is this the end of the stock market crash? That could be followed by: might business activity return to usual sooner than some predict?
The end of the stock market crash
It’s impossible to call. Nobody knows what a new week may bring. Of course, the end of the 2020 stock market crash will happen at some point. But nobody knows when. Despite this, I recommend a strategy that remains constant, regardless of whether the stock market crash will end in a month, or even next year.
This would avoid the common pitfalls associated with trying to time the market while making it possible to snap up some bargains.
Drip-feeding your investments
The conventional way to avoid the issues that come with trying to time the market is to invest regularly. Using this strategy, investors ‘drip-feed’ money in, rather than investing in one-off chunks.
Drip-feeding a set amount of cash (say, £200 a month) into your investments means you buy more stock when prices are down and less when prices are up. To illustrate, when prices fall, this regular contribution buys more shares. Conversely, fewer shares are bought when prices increase.
That means you won’t miss out on the bargains up for grabs in the market at the moment. But also prevents you buying too much stock when prices may have further to fall, potentially leading to you missing out on buying even cheaper stocks.
Ultimately, you’ll still have cash to invest if the markets dip even lower.
Invest in UK companies
Speaking of bargains, many FTSE 350 companies are currently trading on dirt-cheap valuations. The FTSE 100 and the FTSE 250 have lost around 27% and 33% of their value respectively.
That means a vast selection of good-quality companies can be picked up for great value in the stock market right now. I wrote about two I like the look of in particular here. And alongside investing in individual stocks, now could be a great time to buy one, or both, of the top UK indexes too.
Looking at long-term charts showing the value of the FTSE 100 and FTSE 250 overall, you’ll notice that after every major fall, the market soon rises.
This illustrates an essential rule of thumb for investors. Namely, the stock market always recovers and shareholders can receive attractive returns for investing during the dips.
Hold for the long term
However, in order to maximise returns, you must be prepared to be in it for the long haul. Millionaires are rarely made overnight in the stock market.
Investing genius Warren Buffet is testament to this. The majority of his wealth was achieved after he was 50 years-old! This was thanks to his investments being allowed to compound over time.
All things considered, trying to determine the end of the stock market crash becomes irrelevant if you’re investing for the long term.
That’s because your investments have the time to ride out the peaks and troughs in the stock market. All the while, you can reinvest dividends and allow for the process of compounding to begin.
So regardless of whether the end of the stock market crash is here or is some weeks or months away, I’d continue investing in UK companies as usual.