According to the Office for Budget Responsibility (OBR), this is our worst economic slump for 300 years. The OBR expects GDP to shrink by 11.3% this year, which is only trumped by the devastation of the Great Frost of 1709. No wonder FTSE 100 shares have fallen.
That knowledge first spiked my amazement that we even have records going back that far. Then I felt sympathy for anyone in charge of budget responsibility. But though such a sorry economic prospect approaches disaster, reading further helped settle my fears.
The economy is expected to pick up next year, but probably won’t be back to pre-pandemic levels until the end of 2022. Now, hang on a minute, a massive disaster that’s over in two years doesn’t seem like something to despair over. It’s certainly no reason to abandon investing in FTSE 100 shares, as many have done this year.
Carry on investing
An economic slump is dreadful, especially for those losing their jobs. Nobody wants it to happen. But from a long-term investment perspective, even a two-year dip, shouldn’t be a reason to stop investing. The dip might be deep, but if it’s effectively flat after two years? Twenty four months are hard to even see on long-term FTSE 100 share price charts.
The approach championed by all of us at The Motley Fool is to invest for the long term. For me, that’s five years as an absolute minimum. But I really prefer to commit to 10 years, and 20 is even better. According to a Barclays study, the UK stock market has never lost out to cash investments over any 20-year period in the past 120 years, or so. Not even once.
I’m in it until the end
With that long-term commitment behind me, I can take short-term dips in my stride. But I confess the depths that FTSE 100 shares reached in the 2020 crash sorely tested me. I’m confident that good companies will thrive, and that my stock values will recover before I need the cash. But it’s an altogether different thing to watch them plummeting and not flinch.
I was talking to a financial adviser not long ago. And when I said that my investments were almost totally in FTSE 100 shares with a long-term horizon, you know what he said? He rejected my strategy, saying that it was all very well but it wasn’t not much good this year. My long-term strategy doesn’t work in the short term? It makes me wonder how you get to be a financial adviser these days! One of my fellow Motley Fool writers is one, so I’ll have to ask him.
FTSE 100 share price panic?
The key thing now is to not panic, and I’m certainly not going to sell any of my FTSE 100 shares. Instead, I’m planning to buy more for my Stocks and Shares ISA. And the stock market crash and economic slump? I say never mind the depth, feel the duration — or something like that.
The grey clouds from the OBR haven’t a silver lining, but a golden one. The prospect of getting back to almost-normal by the end of next year is better than this long-term investor had hoped.