This year’s £20,000 ISA allowance expires exactly two weeks today. Despite widespread fears of a stock market crash, I’m still pumping regular sums into stocks and shares.
I will continue to do so even though investor sentiment is highly volatile right now. I never let the small matter of a stock market crash or correction put me off.
In fact, I often see a crash as an incentive to pump more money into the stock market. That’s because it gives me the opportunity to buy more shares or investment fund units at the lower price. Rain or shine, I always reckon it’s a good time to buy shares.
Volatility doesn’t scare me
Second-guessing stock market movements is a fool’s errand. Trying to second-guess a crash is even more ridiculous. It can’t be done. By rights, the market should have plummeted this year, as inflation skyrockets and Russia trashes the global order by launching its brutal invasion of Ukraine. Investors should be running for the hills. Or diving into cash.
Yet on Monday, the FTSE 100 jumped 0.51% to 7,442.39. It’s up around 500 points since dipping below 7,000 shortly after the invasion. That makes no sense to me. Vague hopes of what seem (to me) unlikely peace talks between Vladimir Putin and President Volodymyr Zelensky have turned sentiment briefly bullish.
So instead of a stock market crash, we get a rally. The same thing happened with the oil price. Markets plunged when oil hit $132 a barrel, but not as much as they rebounded when it retreated to $100. Right now, investors are clutching onto every piece of good news they can find. Don’t ask me why. I don’t know. Nobody does (though they have their theories).
That’s why I never whip out a crystal ball and wonder where the stock market will go next. Anybody who reckons they can predict future share price movements is either kidding themselves – or trying to kid other people. So I won’t defer buying shares because I think the stock market might crash.
I buy cheap shares in a stock market crash
I might buy them afterwards though, because then I do have one piece of rock-solid knowledge. After a crash, shares are cheaper than before. That’s when I like to load up. If they fall further, that doesn’t trouble me.
There are two reasons for that. First, I’m investing for a minimum of 15-20 years, which gives the market plenty of time to rebound. Second, if I buy shares and markets fall again, then I cheer myself up by purchasing more at the lower price, a process called averaging down. I never expect to call the very bottom of the market. That’s also impossible.
History shows that collectively, share prices recover after a crash (although individual shares may take a lot longer or never recover to pre-crash levels), and can outperform many other asset classes in the longer run. That’s why I’d always try to max out my £20,000 ISA allowance, regardless of whether the stock market is about to crash, or rocket, or whatever.