I’ve only just explained why I don’t think there’s going to be a FTSE 100 crash any time soon, but part of me is hoping I’ll be proven wrong and that we really are in for one. Why?
Well, I’ve seen a few stock market slumps in my time, and there are two things that have been unarguably true about every single one of them – every one recovered, and every one provided great buying opportunities while it lasted.
So if you’re still in a net buying stage of your investing life, you should welcome stock market crashes as they come along and use them to snap up new shares for less money than you’d otherwise have to pay, shouldn’t you?
Income unaffected
But what if you’re not in a net withdrawal stage, and instead of buying more shares you’re relying on the income from your investments. When I reach my withdrawal stage, I intend to be fully invested in reliable dividend stocks. And you know what a stock market crash does to dividends? Nothing at all. At least, it shouldn’t affect the ability of healthy companies with good dividend cover to keep handing over your regular cash.
And if you haven’t reached your net withdrawal years yet and are still lining up the dividend stocks that will help secure a wealthier and happier retirement, getting the best long-term yields can make a big difference.
FTSE 100 opportunities
Let’s look at a FTSE 100 dividend stock that my colleague Rupert Hargreaves rates as one to keep for life, AstraZeneca. The pharmaceuticals giant has rebuilt its drugs pipeline after losing some key patent protections a few years ago, and Rupert thinks it’s set up nicely now to provide a return to progressive annual dividends.
I agree, and the current forecast 3.3% yield looks like an attractive entry point. But if, say, AstraZeneca shares fell by 10% in a stock market crash, the dividend yield would rise to 3.6%, and the same boost would apply to all future dividends, year after year.
But you know what I think a lot of investors will do when they fear we’re heading for a stock market crash and they want to take defensive action? I reckon they’ll divert their investment cash away from shares and into their Cash ISAs, though I think that’s the exact opposite of a good strategy.
Terrible returns
The best easy access Cash ISA interest rates I can find today reach a measly 1.45%. While that might look better than an actual cash loss should you buy shares that fall in price, it doesn’t even match inflation even, though it dropped as low as 1.7% in August. If you find financial comfort in a guaranteed loss in real terms, well, let’s just say I don’t share your outlook.
Some will seek higher Cash ISA rates through fixed-term offerings, but even then the best I see are paying around 2.3% per year over five years. That’s a little ahead of inflation, but it means locking your cash up for five whole years and not being able to buy cheap shares.
The FTSE 100 is offering an overall dividend yield of 4.5% for 2019, and any market decline could see that boosted nicely. A crash could see us heading for the best time to buy shares in years.
