Stock market crash: I’d buy UK shares now despite recent volatility

Despite recent volatility, I’d continue to buy UK shares, even if there is another stock market crash, 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.

Despite being well into the Covid-19 crisis and hopefully past the worst of the subsequent stock market crash, the last month has shown that UK shares will continue to be volatile for the time being. The backdrop to these swings is a never-ending stream of news stories. Some of which are positive and others negative. With such a barrage of news stories, it’s hard to form an accurate view of what’s actually happening and what that means for UK shares.

UK shares volatile

The result of this uncertainty is that stock prices swing wildly. We saw this at the beginning of the crisis back in March. Recently, it looks like volatility has returned. Until there’s proof that an effective vaccine is imminent, I think we’re going to continue to see significant swings in stock prices.

It feels to me like there are more negative news stories lurking just around the corner. These have the potential to send UK share prices back to where they were in March and April. Another stock market crash could mean falls of up to 50% in some cases. But we should view this as an opportunity.

Sure enough, in time, there will be a solution to this crisis. We just don’t how long it’s going take and what the damage will be in the meantime. But when sentiment becomes more optimistic again, stock prices will rise. In the long run they could rise significantly. This would reward those investors that take the risk of buying UK shares amidst heightened uncertainty.

Opportunities abound

Bearing that in mind, I think there are, and will be, more great opportunities to be had for investors to pick up great companies at bargain prices. But we need to exercise caution. I think it’s prudent to stay away from the riskiest areas, such as tourism and real estate.

Instead, I’d focus on quality companies that have produced solidly profitable results during the crisis. Aviva, Prudential and Mondi have all recently announced very respectable results for the first half of the year, especially given the circumstances. Prudential’s pre-tax profit was just 3% lower than the same period last year. While Aviva managed to report net profits of almost £900m.

These are all high-quality companies, that will endure through the toughest of lockdowns. And they could even emerge from the crisis stronger than they were before.

Some companies have also recently reinstated hefty dividends. Direct Line and Mondi (again) have both not only returned to dividends for this financial year, but also declared catch-up dividends to compensate for those cancelled from the last financial year. Meanwhile, BAE Systems has reinstated its previously deferred dividend, giving a yield of around 5%.

In the current investment climate, those companies that can pay out juicy dividends will be highly sought after. They are some of the strongest companies in the UK. They also seem cheap, with their share prices still impacted by the wider market sentiment, which is why I think they are among the best UK shares right now. If there is another stock market crash, they could be cheaper still. I think these are exactly the kind of UK shares that we should be rushing to buy.

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 owns shares of Aviva and BAE Systems. The Motley Fool UK has recommended Prudential. 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

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »