Watching stock markets crash can be scary. Savers and investors will duck for cover and try to find other ways to use their spare cash. In the long run it can prove to be a costly mistake, but on a human level it kind of makes sense. No one wants to see the value of their investments suddenly fall off a cliff.
Buying property is often seen as an attractive lifeboat by many in tough times like these. A popular belief is that the stability of bricks and mortar makes it the ultimate safe-haven investment. With the global economy facing the biggest downturn since the Great Depression, it’s becoming increasingly appealing for those fearing another market crash.
Landlord profits are sinking
Exploding rents in large parts of the UK are also encouraging many to get involved or to increase their exposure to the buy-to-let market. Some are taking advantage of falling property prices to build a bricks-and-mortar empire, too. Stamp duty reductions announced this week is encouraging many to look closely at the property lettings market also.
This, in my opinion, is a big mistake. Rents might be increasing, sure. However, buy-to-let profits have collapsed in recent years as tax costs have increased, landlord fees have risen and the costs of general property upkeep have ballooned.
A poll from Accumulate Capital at the top of the year showed that that more and more investors are preparing to throw in the towel as a result. Of some 750 landlords it polled, a whopping 37% said that they are planning to sell one or more residential properties in 2020. And almost two-thirds of participants said that greater regulation and higher taxes prompted their decision to sell up.
Buy the market crash!
This is why I believe stock investing is a better way for investors to use their cash.
Studies show us that share investors tend to make an average yearly return of 8% to 10%. That’s over a long-term time horizon and accounts for the impact of stock market crashes. I’d argue that the 2020 market crash allows investors today to maximise their overall returns by buying great companies at low prices.
It’s not like there’s a shortage of brilliant UK shares to buy following the stock market crash. Investors fearing a long and painful global downturn can buy resilient businesses like utilities companies, defence contractors, and healthcare providers. And many of these are at prices I see as too cheap to miss following the market crash.
So which companies do I like? Residential care home operator CareTech Holdings and power station operator Drax Group, for example, both trade on rock-bottom forward price-to-earnings ratios of 10 times. Meanwhile dividend investors might want to take a close look at drugs developer Glaxo and defence play Babcock International Group. Dividend yields for these firms range between 5% and 7% at current prices. With the right strategy it’s possible for stock investors to still make a fortune following the market crash.