How I’m investing in the worst FTSE 100 crash in a generation

FTSE 100 investors face tough choices as share prices fall. Here’s how I plan to profit from the biggest stock market crash since 1987.

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.

The FTSE 100 is uncertain, but that doesn’t mean your financial future has to be. Interest rates are near zero, so stashing your money in a Cash ISA will do nothing to help your wealth.

And while the index is down 23% in the last three months, there are still ways to secure your future prosperity. Dividends, share price growth and stability all remain extremely important to me as a long-term investor.

Bag big FTSE 100 bargains

The investment decisions you make today will ripple far into the future. If you have done your research and you think you’ve spotted an undervalued FTSE 100 bargain, go ahead and buy. With a long enough time horizon, buying and holding good companies is still the best and most proven way to enrich yourself.

No matter how far markets fall, they always bounce back, eventually. You might have to wait three years, or five. But pick strong companies, try not to overpay, then simply sit on your investment. You’ll reap the best rewards.

One thing to note though. The coronavirus-induced economic setback means that traditional value measurements like price-to-earnings ratios are less reliable indicators than usual. Companies are having a tough time predicting what they could earn in the rest of 2020 and beyond. Lifting lockdown restrictions might happen soon, or it might take much longer.

But as investing legend Peter Lynch sagely wrote in One Up On Wall Street: “Companies with no debt can’t go bust.” So I would focus on FTSE companies with low or no debt, strong balance sheets to ride out the storm, operating in sectors that make money whether the economy is doing well or struggling.

For example, there are some classic defensive FTSE 100 shares I think every good investor should consider.

They are: UK utilities infrastructure operator National Grid, household products giant Unilever and global pharma firm GlaxoSmithKline. Depending on your ethical investing stance on addictive products, I’d add British American Tobacco and Diageo to that list as well, where dividends are safer than most.

Some 45%of UK companies have now scrapped (or are preparing to scrap) their dividends in Q1 2020. That’s according to the widely-cited Dividend Monitor report from Link UK.

FTSE 100 diversification

Putting too much weight on one particular sector is the surest way to drag your portfolio down. For example, on 20 April US oil futures dropped below zero for the first time ever. Global demand has cratered under lockdown while storage is reaching capacity and the industry faces some historic bankruptcies.

If all my net worth was tied up in energy stocks, I could be looking at a pretty devastating blow. Instead, I’m spreading my investments across FTSE 100 shares in tech, financials, consumer durables, telecoms, entertainment and more.

Run your winners

The strongest advice I’d give is to keep hold of your best-performing investments, FTSE 100 or otherwise.

For me, that’s the likes of Team17, Microsoft and Frontier Developments. These are highly profitable stocks that have done well out of lockdown with more people staying at home.

These are the ones that will see you through the inevitable torrent of pain that’s coming from a bear market and a global recession worse than the Great Depression.

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.

Tom Rodgers currently owns shares in Microsoft, Team17, Frontier Developments, GlaxoSmithKline and Unilever. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline, Microsoft, and Unilever. The Motley Fool UK has recommended Diageo and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »