Buying FTSE 100 shares at the moment might seem like too big a risk. With the recent turbulence of the FTSE 100, many investors are questioning their investment strategy and whether now is the right time to buy into the index.
As we look to what the future might hold, it is a valid question to ask. The IMF has stated that if the coronavirus crisis peaks in Q2, the total loss to the global economy could be $9trn, which is more than the economies of Germany and Japan combined.
Since the start of the year, the FTSE 100 has dropped by over 25%. Of course, this is not the first time the market has dropped significantly.
Although the past might not repeat itself, in situations like these it can be helpful to look at historical events and to question how the market reacted when it fell last time. These answers could help us to gauge what might happen in the future.
The FTSE 100 falls
Market corrections tend to happen every year or two. However, the last time the FTSE 100 lost a significant proportion of its value was in 2008. From August 2008 to March 2009, the index lost roughly 30%.
However, as many people were moving away from shares, some people were buying.
If you were a contrarian in 2009 and bought FTSE 100 stocks, today you would be sitting on a profit of roughly 50%, not including dividend payments or fees.
Going back further, there was another significant fall in the FTSE 100’s value from March 2002 to the start of 2003. Back then, the index fell by roughly 30%. If you bought FTSE 100 shares back then and still held them, you would have seen gains of 58%, not including fees or dividends. Once again, the market favoured those investing with optimism and for the long term.
Back then, there were similar headlines to what we are seeing today. People predicted the worst for stocks, and yet share prices still recovered.
However, predicting what the market is going to do and only buying at the low points is impossible.
Another way to buy FTSE 100 shares
The last thing any investor wants to do is part with a lump sum of money and see the value of their holdings fall the next day.
I would guess that these nerves are what puts off most people from buying FTSE 100 shares.
There is another way to buy stocks without worrying about timing the market, called pound cost averaging. This can be achieved by setting up a schedule of regular purchases your chosen shares or index fund.
By pound cost averaging, you will ride the stock market, buying shares when they are at high and low points, which should average out over the long term.
Although many investors are feeling nervous at the moment, I believe that with the recent market crash, now could truly be a great opportunity to start buying FTSE 100 shares.