Stock market crash: I’d buy shares now

It’s easy to vary how much we invest in response to stock market prices, writes Thomas Carr.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s always hard to invest when there’s uncertainty, particularly after a stock market crash. Right now, nobody knows what’s going to happen to the economy, to business sectors, or to specific businesses. Above all, nobody knows what’s going to happen to the stock market in the short term. Even in the best of times, predicting the short-term movement of the stock market is a fool’s game.

Bearing this in mind, we need to think how we can adapt our investment strategy to take account of share price volatility and variance in potential outcomes. While we don’t know which way share prices are going to move in the short term, we do know that in the long term, they invariably track upwards as economies and businesses grow.

Reducing investment risk

Additionally, we can see that following the stock market crash, share prices are currently low by historical standards. That is certainly the case here in the UK. Therefore, as long as we have long holding periods, it’s likely that our investments will gain in value. In fact, along with diversification, extending investment holding periods is the best way to reduce investment risk. This holds true even in the most uncertain of times.

With share prices at such low levels, it also follows – somewhat counterintuitively – that now is a better time to invest for the long term, than any other point when share prices were higher. Those who invested a few years (or months) ago are likely sitting on losses. Whereas those entering the market now, after the stock market crash, are more likely to come away with inflated returns. Investors are rewarded for taking on the perceived risk of investing during periods of uncertainty.

Investing after a stock market crash

I’ve written before about how regular investing in the stock market can help to smooth out the average price that we pay for our shares. By investing the same amount every month, we eliminate the risk of buying all our shares at market tops. Instead, if done over a period of years, we will likely buy shares at all stages of the stock market cycle. This means we don’t need to worry about market timing, and we can focus instead on buying the shares that we like.

One slight variation to this strategy is to vary the amounts we invest every month, in accordance with stock market valuations. This would result in us investing greater amounts when shares look cheap, and less when they look expensive. For instance, we could say that when the average price-to-earnings ratio of the FTSE 100 is below 15, we would invest more than when it was above 15. Under this strategy, we would have been investing more after the stock market crash, taking advantage of the lower prices.

Of course, one big problem with this approach is that in a rising market, we may end up investing less than we should do. For best results, we would need to regularly review the valuation level that dictates whether we buy more or less. Also, depending on the route we use to buy our stocks, it could be that investing this regularly incurs higher transaction costs. To mitigate this, instead of investing once a month, we could invest larger amounts every three months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »