The stock market has had a bit of a wobble this month. As the US unveiled global tariffs, fearful investors rushed for the exits sending stock prices tumbling worldwide.
While US stocks were arguably hit the hardest, the markets promptly rallied once tariff delays and exemptions started to emerge. Yet, shares are still trading lower compared to the start of the year, even here in the UK. And with uncertainty still looming over investors’ heads, the market correction could be far from over. It could even evolve into a full-blown crash in 2025.
Admittedly, this is a worst-case scenario. However, should the worst come to pass, it could create a once-in-a-lifetime opportunity for some investors to build a seven-figure portfolio.
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A rare opportunity
Corrections in the stock market are fairly commonplace. But a full-blown market crash is far rarer. In fact, over the last 20 years, investors have only endured two of them – the 2008 financial crisis and the 2020 Covid crash.
Investing in top-notch businesses when stock prices are in free-fall is a proven strategy for achieving market-beating returns. Even when relying on index funds, it’s possible to outperform an index’s historical average gain.
Take the most recent crash in 2020 as an example. Investors who topped up on a FTSE 100 index tracker during the peak of the chaos have gone on to earn a 14.3% annualised total return over the last five years. That’s significantly ahead of the 8% long-term average the UK’s flagship index has achieved.
When investing £500 a month at this rate of return, the journey to £1m only takes 23 years when starting from scratch compared to the 34 years needed at 8%. As such, for those with only around two decades ahead of them before retirement, another stock market crash in 2025 could be a last opportunity to become a millionaire investor.
Stock picking can outperform
Investors operating on a short-term time horizon can still leverage a sudden downturn in the stock market to aim for a £1m portfolio. Instead of relying on index funds, a direct investment into a high-quality enterprise with ample growth potential could be the answer.
Take a business like Shopify (NASDAQ:SHOP) as an example. The stock’s undeniably volatile, with the shares still trying to recover to their 2021 peak. However, even with the massive swings in valuation, buying during the last crash has generated a 20.8% annualised return since. And at this rate, the journey to £1m takes just shy of 18 years.
As of 2024, an estimated 10% of all e-commerce spending in the US now relies on Shopify’s platform. With that in mind, it’s not surprising to see explosive revenue, free cash flow, and earnings growth. And now that the business is boosting its international expansion efforts, investors may have only seen the tip of the iceberg so far.
This potential is why Shopify, despite its volatility, is one of my largest holdings. However, buying shares today does have its risks, even after tumbling over 20% since the start of the year. If fears surrounding US tariffs potentially spark a recession, that doesn’t bode well for this business. Most of its users are small- and medium-sized businesses, which are the most sensitive to economic wobbles, making growth far more challenging in the short term.
