The speed of this year’s stock market crash has been astounding. Household name companies have mothballed operations, dozens have scrapped their dividends and others have given up making profit forecasts. Yet ironically, this is a great opportunity to buy cheap FTSE 100 shares, because so many top companies are trading well below their historic average valuations.
The uncertainty may continue until we see a way out of the Covid-19 lockdown, but over the longer term, the index offers lots of recovery potential. It has been through plenty of bear markets before, and recovered every time. This could make now a good time to buy cheap FTSE 100 shares at bargain valuations, before the stock market crash reverses.
The government has yet to plot a way out of the coronavirus lockdown. Social distancing measures could last for many weeks longer. This makes the short-term FTSE 100 outlook highly uncertain, and we could see further volatility for some time. That is not a problem if you are investing for the long term. In fact, it is an opportunity.
I’d buy cheap FTSE 100 shares today
I cannot tell you how quickly the FTSE 100 will recover from the stock market crash. All I know is that it has recovered from all the others. In some cases, it took just a few months. In others, a year or two. Nobody knows how long this one will take.
Successful investors know the best time to buy stocks is before markets start to recover. When investor sentiment returns, share prices can shoot up rapidly. You do not want to miss out on the first leg of the recovery, as it can be the most dramatic.
But if you try to time your entry, you will almost certainly get it wrong. Instead, you should buy cheap FTSE 100 shares today, ready for the upturn. While you wait, you should reinvest any dividends you receive, to pick up more stock at the low price. That will put you in an even better position for the recovery.
Investors who buy stocks during bear markets such as after Black Monday in 1997, the tech crash of 2000 and the financial crisis of 2008 often generated outsized returns.
No stock market crash lasts forever
Naturally, if your job is under threat, you have expensive credit card debt or major bills coming up, you should focus on paying those first. However, if you have money for long-term savings, I’d advise using it to buy cheap FTSE 100 shares today.
To reduce the risks, look for top companies with strong balance sheets, healthy cash generation, competitive advantages, and relatively low debt. I would also diversify across sectors and countries, because some will recover faster than others.
Today is a great opportunity to buy high-quality stocks at bargain valuations. It happens every time the stock market crashes and FTSE 100 shares are cheap.