This year’s stock market crash has been one of the worst on record. As governments around the world have closed down whole countries, business revenue has evaporated overnight.
These actions have sent global stock prices plunging, as some of the biggest companies in the world have seen sales disappear. Unfortunately, this could be just the start. March’s stock market crash was a reaction to the coronavirus outbreak.
Investors now have to deal with the economic fallout. Initial figures suggest this is going to be one of the biggest economic collapses in history. In other words, there’s a good chance the stock market crash could get a lot worse.
Stock market crash: Not over
Investors are facing some difficult choices right now. On the one hand, many stocks look cheap compared to history. However, on the other hand, there’s a good chance the stock market crash could get a lot worse before it gets better.
The problem is, it’s impossible to tell what the future holds for the stock market. We don’t know if stocks are going to rise or fall from current levels. They could do both.
In this environment, the best course of action is to stick to your investment plan. Buy good quality companies at reasonable prices when you can afford to, and don’t let market action drive your decisions.
Investing for the long term
Over the past 120 years, the UK stock market has produced an average return for investors, after inflation, of around 5%. This time frame encompasses some of the most volatile periods in human history.
If the market can come out stronger after events such as WWI and WWII, its highly likely the market will be higher in 10 years than it is today. With that in mind, investors should focus on the long-term potential of stocks and avoid trying to time the stock market crash.
Multiple studies have shown that trying to pick market tops and bottoms is a waste of time. It’s better to sit tight and regularly invest over a long time frame. This will allow you to benefit from the wealth-creating powers of the stock market without having to spend too much time trying to work out whether or not it is a good time to invest.
The bottom line
Overall, there’s a good chance the stock market crash could have further to go. But we just don’t know how significant the decline will ultimately be. What we do know is that, over the long term, stocks tend to produce an attractive return.
In times of uncertainty, it could be better to focus on the long-term potential of stocks, rather than trying to predict short-term market movements. It’s never a bad time to invest in high-quality businesses with a definite competitive advantage.
