How I’m investing in the stock market crash of 2020

In this stock market crash, I’m keeping cash aside for needs and emergencies, but investing what I can afford to lose in FTSE 100 stocks.

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 stock market crash might have been dramatic, not to mention scary, but it has also created an unprecedented investing opportunity for many of us. The FTSE 100’s almost 11% fall earlier in March was the biggest since late 1987, at which time I reckon not many current investors were active.

Now that we are active investors, it can be a good time to buy. But it’s worth remembering that it’s never a bad time to be careful.

By being careful, I mean it’s important to ensure that we are not putting all our financial resources in stocks in the hope of making big bucks. We need to have enough cash cover for our expenses. It’s especially important to have an emergency fund, too. If we didn’t have one earlier, the coronavirus crisis is a lesson in why we need one.

Only investing what I’m prepared to lose

Of the amount left, I’d buy stocks to the extent that I’m prepared to stomach at least some loss. It’s quite unlikely that as a long-term investor I’d lose all my capital. But it helps to be prepared to take a hit on some investments. Consider the example of Sirius Minerals, which recently got sold to the FTSE 100 multi-commodity miner Anglo American at a price much lower than that paid by many investors.

Or consider the FTSE 100 grocer Tesco, whose share price right now is around the same levels as it was 10 years ago. If I had been holding the share for the last 10 years, I’d pretty much have no capital gains. I wouldn’t have the consolation of a high dividend yield either. TSCO’s yield is at 3% right now, much less than the 6.8% yield for FTSE 100 stocks as a whole.

FTSE 100 dividend yields rival capital appreciation

There are other shares I’m happy to hold only for the dividend yield they offer. One example is BP, which has a yield of 14.8% after its price halved. Its long-term share price chart is far from encouraging, with no continuous increases over an appreciable period of time. But its dividend yield can make up for lack of capital appreciation. The FTSE 100 tobacco giant Imperial Brands is another one to consider for this reason, with its 15.4% yield.

Fearlessly investing in high-growth stocks

There are yet others I’d hold purely for growth. Consider the FTSE 100 luxury brand and retailer Burberry, whose share price has also halved in the crash. But it had suffered a similar fate in the aftermath of the Lehman Brothers collapse in September 2008 and the financial crisis that followed. It fell to a third of its share price by November 2008 from the peak of the boom in mid-2007. If I had bought the BRBY stock then, I’d still be sitting on at least 5x capital appreciation.

In sum, there are enough and more gains to be made, and I’d strongly advocate investing for that reason. But there’s also such a thing as too much greed, and I’m being careful to not getting carried away.

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.

Manika Premsingh owns shares of BP and Sirius Minerals. The Motley Fool UK has recommended Burberry, Imperial Brands, and Tesco. 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

2 industry-leading value stocks investors should consider buying

These value stocks are at the top of their respective industries, and look like current bargains with the potential to…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Just released: our 3 top small-cap stocks to buy before August [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 index fund 10 years ago, here’s what I’d have now!

Charlie Carman explores the performance of the FTSE 100 index over the past decade and the merits of passive versus…

Read more »

Investing Articles

£15K stashed away? I could turn that into a second income worth £49 a day!

This Fool explains how she would look to gain a second income through investing in UK stocks, and the steps…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

With the Apple share price near an all-time high, would I be crazy to buy more?

After touching all-time highs yesterday, the Apple share price is on a roll. But is there still enough growth ahead…

Read more »

Investing Articles

Nvidia stock has fallen 13% from its 52-week high! What next?

Our writer explains why Nvidia stock has dipped recently and highlights some risks associated with investing in the AI leader…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

The AstraZeneca share price is up 88% in 5 years, but is it just getting started?

The AstraZeneca share price has had a great few years, as acquisitions and clinical trials delighted shareholders. So is there…

Read more »

Investing Articles

Here’s why I’m watching the Anglo American share price

The mining sector has always interested investors. But after a flat few years, I'm wondering what's next for the Anglo…

Read more »