I’m sometimes asked what’s the best time to start investing. My answer is now. Any time is a good time to start investing, if you’re in it for the long term. But some times are better than others, and a stock market crash can throw up some bargain buys. The FTSE 100 is still down 20% in 2020, so time to get started?
You need to know what to do. And, more importantly, what not to do. During the lockdown, young people in work but with nowhere to go spend their cash have been having a go at the stock market. Now, that can be a good thing, but some early reactions are not so favourable.
“I didn’t know I could lose money so fast.” That’s not something I like to hear. But it has been happening. We’re in a stock market crash, you see a share that’s fallen badly, and you think you can get in and make a quick profit. But it carries on down, and you sell out a few days later to cut your losses.
The way to lose
You might pick some winners too, but with no real long-term strategy you’re unlikely to find more winners than losers. Not if you’re looking for quick profits. Every time you buy and sell, you pay your broker a commission. And there’s the market spread too – at any one time you have to pay more to buy a share than you’d get selling it. And that buy/sell spread can be big. I recently examined a popular penny-share growth stock, and at the time I looked the spread meant you’d need a 10% price gain just to break even. Stock market crash prices don’t help if you have that to overcome.
How not to get burned
A few months, or maybe only a few weeks, of frustrating results and lost cash could put you off stock market investing for life. And that would be a shame. Because shares have provided the best form of investment for more than a century. If you get your approach right, getting started during a stock market crash can give you an extra boost. But you have to look at it the right way.
The first thing you need to know is what you’re buying when you plonk down your stake. Are you gambling on a number on a chart? Do you see it as buying a lottery ticket and hoping yours will come up? Wrong. Are you buying a portion of a business that you’d love to own forever and enrich yourself with profits and dividends? Right.
Stock market crash boost
Suppose you buy shares in Tesco, AstraZeneca, BP, or any other top FTSE 100 companies. You’ve become a part owner of some great British (and worldwide) businesses. Forget the share price and where it might go in the coming days, weeks, and months. Think instead of how much you can accumulate in dividends over the next five, 10, 20 years.
If you approach investing like that, in a few decades time you can look back on the 2020 stock market crash and think what a great year it was.
