Another FTSE 100 stock market crash in 2020? Prepare with common sense!

The FTSE 100 (INDEXFTSE:UKX) features some of the UK’s biggest and best companies, including those that can withstand a second stock market crash.

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.

Speculation is rife on the odds of a second stock market crash in 2020. Many FTSE 100 constituents have opted not to disclose their earnings outlook for the year ahead. To be fair, they’re probably not sure how to calculate accurate guidance when none of us have much clue how the future will look. This makes it hard for investors and analysts to know how fairly a stock is priced.

Is bullish sentiment an illusion?

The pandemic and subsequent lockdown created initial panic, followed by furlough schemes and mortgage holidays to ease the stress. This gave people the chance to come to terms with reality and consider their options. For some, it has been a devastating time, for others a welcome break from the rat race. As restrictions are eased, stock market sentiment is turning positive, but this may be premature. It will take time to adjust to a new normal and I think consumer spending patterns will be cautious.

Hope remains

Don’t abandon hope! Without hopes and dreams, no money would ever be made. Now, if that sounds a little too airy-fairy, I think common sense is needed too. If I were to go out and buy shares in all the highly-pumped AIM shares riding the coronavirus healthcare wave, I think I could quickly lose my savings.

That said, I don’t think investing in the stock market is a mug’s game. If you stick to the relative stability of the FTSE 100, then you’re dealing with businesses that have previously reached an outstanding level of success and it is likely many of them will continue to do so in the years to come.

Be prepared

Here’s how I think you can prepare for a second stock market crash in 2020. For each asset you own, look at its long-term potential for recovery and growth. Check the level of debt in the businesses you own. A high debt ratio could be a recipe for disaster if the markets head south again. But a healthy balance sheet could see you through the downturn and emerge victoriously. Is the company selling a product or service likely to remain in demand in the years to come?

And do you have enough cash reserves to take advantage of a stock market crash if or when it comes? Make a list of equities you have faith in. Watch how they’re dealing with market sentiment. Are the worries and gloom already priced-in? Consider which sectors can withstand the headwinds and survive a bear market. 

Timing the market

Remember to look to the long-term. If you’re aiming for a 10-year time horizon and can cope with price fluctuations without freaking out, then the ‘perfect’ time to buy is arguably irrelevant.

Timing the market is impossible, even for the most experienced investors, therefore waiting for the next stock market crash is not always the answer. If an equity on your watch list looks fairly priced and you’re prepared to hold, then this could be as good a time as any to buy.

I think the FTSE 100 contains some great companies worth owning a piece of. It’s never too late for you to start learning about the stock market and researching cheap shares to buy.

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

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 »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »