Most people assume a stock market crash destroys their wealth which, of course, it does… in the short term. However, investing is a long-term game. If you view it that way, then a crash actually helps you get richer.
It could turbo-charge your quest to build a million-pound portfolio, and retire at a time of your choosing. Every stock market crash throws up plenty of FTSE 100 bargains. Buy them today and you’ll be rewarded when the recovery finally comes. It will, eventually, but could take time.
Nobody makes a million on the stock market overnight. The process takes years. However, if you’re investing for retirement, you have your working lifetime to build your wealth. You will see plenty of stock market crashes in that time. And the Motley Fool‘s advice will always be the same. Buy shares while they’re cheap.
The younger you start investing, the better. A 25-year-old who put away £500 a month and generated the average FTSE 100 long-term return of 6.5% after charges would have £1.12m by age 65, if they reinvested all their dividends.
Use the stock market crash wisely
The later you start, the harder it gets. If you invest £500 a month from age 35, you’ll have £551,935 at 65, assuming 6.5% growth. It isn’t a million, but it’s still a tidy sum. You can accelerate your plans by paying in lump sums at times like these.
Today may seem like a scary time to invest in the FTSE 100. We’ve just had one stock market crash, and maybe due another. The Covid-19 pandemic is wreaking unprecedented damage and is far from over. So should you hold off and see what happens next?
The problem is nobody knows where share prices will go next. In January, few anticipated the March crash. At the depth of the meltdown, when the FTSE 100 fell below 5,000, few predicted the subsequent recovery.
If you hold off waiting for the perfect time to invest, you’ll never put money into the stock market at all. And certainly won’t get close to making that million.
Choose FTSE 100 bargains wisely
So what can you do? While nobody can see the future, everybody has the power of hindsight. Looking back on the crash, you can see the stock market is down almost 25% from its January peak. So, today, you’re picking up stocks at reduced prices, just like you might buy clothes in the sales.
Choose your stocks carefully though. Some companies are now incredibly risky, such as cruise liners and high street retailers.
Look for companies that generate plenty of cash, have minimal debt, and offer a product or service that people appreciate, even in a recession.
It helps if they pay generous dividends too. Many companies still do.
Remember to invest inside a Stocks and Shares ISA. That way you can take your your capital growth and income free of tax, for life.
Even if you never make a million, you’ll still have more money than if you never tried it all. Don’t fear the stock market crash – use it.
