One reason why I’m not worried about a stock market crash in 2020

Risks to the global economy’s performance could provide buying opportunities for long-term investors.

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 been over a decade since the last global recession. History shows that no boom period or bull market has ever lasted in perpetuity. As such, with risks such as Brexit, a global trade war and political uncertainty in the US, some investors may be concerned about the prospect of a stock market crash in 2020.

However, history also shows stock markets have always recovered from their downturns. As such, a crash could prove to be a buying opportunity for long-term investors, rather than a reason to be concerned about the short-term prospects for investments.

Volatility

Fears surrounding a global recession may have already contributed to weak performances in indexes such as the FTSE 100 and FTSE 250 during 2019. Both have experienced a relatively high degree of volatility that’s caused some investors to adopt an increasingly risk-averse attitude.

While this standpoint is understandable, since no investor wishes to experience losses over any time period, the reality is the stock market continually experiences short-term volatility. In other words, in any given year it will display sharp upward and downward movements that can cause investor emotions to change rapidly.

In the long run, though, the trajectory of the stock market has been upwards since its inception, thereby providing investors who can look beyond short-term movements with opportunities to generate high returns.

Stock market crash

Clearly, a stock market crash in 2020 would be more worrisome for investors that intra-year volatility. The financial crisis, for example, caused the FTSE 100 to halve in a mater of months.

For investors who maintained a bullish long-term view on equities, however, there were significant rewards to be gained. The FTSE 100, as well as other major indices, such as the FTSE 250 and S&P 500, recovered over the years following the financial crisis. Many of their members now trade at record highs.

Therefore, investors who are able to view a market crash as a buying opportunity, as opposed to a period of losses, can stand to benefit from it. This means that should a major downturn take place in 2020, there could be the chance to buy high-quality businesses at discounted valuations.

Cash holdings

For this reason, holding some cash could prove to be a sound move. While it’s always tempting to remain fully invested in the stock market, successful investors such as Warren Buffett keep a significant sum of cash on hand in case of a market crash.

This strategy may mean lower returns in the short run, but equally it can deliver higher returns in the long run as investors capitalise on lower valuations.

Therefore, while a market crash could occur at any point in 2020 (or, in fact, in the remainder of 2019), the track record of equities shows it can be a moment to capitalise on low valuations in order to generate high returns in the long run.

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.

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

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 »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

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 »