It’s been a rough year for UK shares, and it’s not over yet. We could easily see another stock market crash in the weeks ahead, and not just due to Covid-19. The UK also has Brexit to contend with. Together, they could give us a bumpy end to the year.
Many investors will be feeling nervous about trading in today’s market. They know a crash is a great time to buy UK shares, as many top FTSE 100 companies are now trading at dirt-cheap valuations. Many will have heard the famous Warren Buffett quote that “the best time to be greedy is when others are fearful,” but feel too fearful themselves to act on it. I’m also wary, but still believe this is a terrific opportunity to build your long-term wealth.
If you’re serious about investing, you have to take advantage of moments of maximum fear like this. Some ambitious investors set themselves a target of making a million in UK shares, to set themselves up for retirement. It can be done, but only if you invest early and often, and stick with it through the tough times.
UK shares are down
Three things worry me right now. First, we have not seen the back of the pandemic. Until we have a usable vaccine, some form of social distancing measures will have to stay in place. On a more positive note, I’m hoping the days of wholesale lockdowns are over. The economy cannot stand it, and I don’t think people can either.
While some UK shares will continue to be hit hard, notably in the travel sector, others are benefiting from pent-up demand. Clothing chain Primark cashed in as shoppers flooded out to buy something new to wear, according to today’s fourth-quarter results from parent Associated British Foods.
My second worry is Brexit, as Boris Johnson’s government takes a harder line on EU negotiations. Johnson is demanding a deal is reached by 15 October, otherwise we’ll trade on World Trade Organisation terms from January. Some will be impressed by his tough stance, others horrified. Either way, it creates massive uncertainty. If it ends in chaos, UK shares are likely to feel the impact.
Stock market crash buying opportunity
Finally, UK shares have underperformed global stock markets this year. In the US, the S&P 500 has recovered its March losses, and is now up more than 8% year-to-date. Incredibly, the tech-dominated NASDAQ is up 33%, according to figures from Tilney Investment Management. Unfortunately, the FTSE 100 is still down more than 20%. The UK is in a bad place. That’s why shares are so cheap.
If you want to make a million from UK shares, you have to show a bit of ambition. If you buy dirt-cheap FTSE 100 shares today, you can get them at greatly-reduced valuations. That reflects today’s greater uncertainties. You should aim to hold them for the long term. History shows that the FTSE 100 always recovers in the end, if you give it time.
Brexit and the stock market crash make today a scary time to buy UK shares. It could also prove a highly rewarding one.