As the stock market crash intensifies, the FTSE 100 has just dropped below 5,000. Given the widening coronavirus threat, it could fall even further.
If you think now is a terrible time to buy shares, I reckon you’re wrong. If I had £5k at my disposal, I’d be populating my watchlist and lining up bargain stocks to buy in the troubled weeks ahead.
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The worst thing you could do now would be to sell your shares. By selling after a stock market crash, you turn your paper losses into the real thing, and will be locked out of the recovery when it finally comes.
So ignore all the negative headlines. Panic and pessimism are not your friends right now, although you’re wise to exercise caution.
Stay calm, buy shares
My advice is to gather your courage and prepare to start feeding money into your favourite shares at knock-down prices, thanks to the stock market crash.
The end of the Stocks and Shares ISA season is fast approaching. If you want to secure your annual £20k ISA allowance, you could park a lump sum in your account, then invest your money steadily, as opportunities present themselves.
I’d invest my £5k across a range on FTSE 100 blue-chip stocks, targeting those with healthy balance sheets, low net debt, steady cash flows and loyal customers. That should put them in good shape to survive today’s stock market crash, and benefit when markets recover, especially if weaker rivals have been driven out of business.
Some companies are holding up pretty well right now. For example, supermarket delivery firm Ocado Group, as shoppers stockpile.
Others have crashed, but still offer long-term solidity, such as utility firm National Grid. Given its strong China focus, HSBC Holdings could lead the stock market recovery, if the tough action the authorities are taking in Asia curbs the Covid-19 threat.
Now could be a good time to load up on pharmaceutical stocks. Just look at GlaxoSmithKline, now trading at just 11 times earnings and yielding 5.75%. These are the type of stocks I’d be looking for right now. You may have your own favourites.
Accept that you’ll never catch the exact bottom of the market but, with luck, you’ll come close. Then just sit tight and wait for markets to recover.
Take your time
I’m not going to underplay the risks. Our globalised economy has never faced a threat like this. We don’t how long it will last, how much long-term damage will be done, and what governments can do to ease the pain.
The FTSE 100 stock market crash has knocked a third off share prices. The dotcom crash and financial crisis wreaked greater havoc, with share prices down by half. We may emulate that, nobody knows. However, in both those cases, share prices rose rapidly in the aftermath, and those who held their nerve and took advantage of the sell-off reaped the rewards.
That will happen again. We just don’t know when.