Is another stock market crash on the horizon? As the pandemic shows no signs of receding, market pressure continues to build. In October, global equities suffered their worst period since March. But this need not be taken as a signal to sell. Far from it. A market crash presents a buying opportunity and a FTSE 100 ripe for the picking.
The FTSE 100 follows the S&P 500
I think it’s worth keeping an eye on the S&P 500 index in America. That’s because where it goes, the UK’s FTSE indices often follow. With the chaos of the US presidential election causing market volatility across the pond, this could potentially have a knock-on effect over here.
Now that Joe Biden has been named the next President, many believe he will raise taxes and increase corporate regulation. This could increase the likelihood of a market crash, but with so many factors at play, anything could happen. Much hinges on the next wave of government stimulus. There’s still over two months until they swear in the new President, so I expect market volatility to continue until then.
Profits bloom from market crash gloom
As far as the UK is concerned, Brexit is still looming. The pandemic is raging on and England has begun its second lockdown. None of this is good news for UK financial markets. Last week’s UK stimulus announcement was welcomed, and Pfizer‘s vaccine news gave markets a temporary boost, but until Covid-19 is eradicated, economic uncertainty remains.Â
Bad news in the markets can mean a buying opportunity for savvy investors. I like to maintain a wish list of stocks to buy during a market crash. These are quality stocks that offer resilience and growth potential. They are often overpriced in a bull run, but a market crash re-rates them to an appealing price point.
While this may seem risky, it’s a common move among successful long-term stock pickers. Billionaires, such as Warren Buffett and his colleague Charlie Munger, both advocate value investing. This means picking up quality shares with a competitive edge, when the price is undervalued. A market crash provides this opportunity. Buy and hold is the name of the game. I think this means buying stocks with a view to holding them for a minimum of five years, preferably 10 years or even longer.
Timing the market
Getting in on a market low and snapping up the best buys is not as easy as it sounds. Unless you’re a day trader glued to a screen, timing a market crash can be difficult. Having the stock list ready is one thing. But cash in the bank, set to deploy, is not always possible. That’s why I think recurring investments are a great strategy for long-term investing. Investing on a monthly basis allows me to benefit from tumbling stock prices in the short term.
Hargreaves Lansdown offers low fees for recurring investments, meaning I can buy small amounts of stock regularly, benefiting from a margin of safety and improved capital appreciation potential in the long run.
Assuming an annual return of 8%, a £100 investment monthly could transform into £215,000 over 35 years. This shows the power of regular investing. Whispers of ISA millionaires may sound too good to be true, but for those who can afford to invest more or wait longer, it’s not an impossibility.