This stock market crash is brutal. The FTSE 100 is down more than 2,200 points since mid-January, a drop of around 30%. Things could get worse before they get better. Yet I still think we are looking at a serious buying opportunity, especially if you are looking to use this year’s Stocks and Shares ISA allowance.
When the world faces a crisis, stock markets crash. That’s what they do. As the outlook brightens, they rebound sharply. By investing in a Stocks and Shares ISA today, you could be nicely placed when they do.
That makes now a tempting time to invest £2k in the FTSE 100, to pick up top blue-chip stocks when they are down. The aim then is to hold on for the long term, to benefit from the higher returns you get from shares over the longer run.
Markets have crashed before
I am old enough to remember the 1987 crash on Black Monday, one of the fastest in history. I remember how the FTSE 100 crashed during the technology bubble, in the weeks after 9/11, and of course the financial crisis in 2008.
It always comes as a shock. Investors look at their pensions and Stocks and Shares ISAs, and see they are worth less than before. That hurts.
Many respond by diving into safer assets, such as cash and gold, and you might be tempted by that right now. The FTSE 100 could fall further. In the financial crisis, it fell by half. If the crisis drags on, putting more pressure on balance sheets, that could happen again.
Start buying the FTSE 100 now
I wouldn’t throw in every penny at my disposal, as a result. I would secure this year’s Stocks and Shares ISA allowance, then start feeding money in, every time share prices dip. In the longer run, that seems the most sensible way to play today’s stock market crisis.
After a bear market, history shows we enjoy a bull run. These are the ups and downs you get with equity investing. To make the most of this volatility, it makes sense to buy when shares are cheap, as they are now, rather than when they are expensive.
You will never buy at the absolute bottom of the market, but by drip-feeding money into the market, you should still pick up bargain companies for your Stocks and Shares ISA. Look for firms with strong balance sheets, loyal customers, steady cash flows and low debt, as these will be better placed to survive and profit at the expense of weaker rivals.
Some could even emerge from the crisis stronger, having boosted their market share at the expense of their rivals.
Stocks and Shares ISA time
Spread your money between a range of FTSE 100 blue chips, looking for those whose share prices have been knocked by the stock market crash, but whose underlying business should hold firm. Target companies you would be happy to hold in 10 or 20 years, ideally longer.
This crash is a great opportunity to build your wealth for the longer term.