Several months have passed since the rather unexpected market crash in global stock markets. Many shares have recovered part of their losses. But the decline still means the bull market we’ve had over the past decade is now over.
Year-to-date, the FTSE 100 and FTSE 250 are down about 19% and 21%, respectively. Put another way, both indexes are flirting with bear market territory — a fact that is likely to make investors nervous and even panic. Yet today, I’d like to discuss why this market crash presents a great investment opportunity in solid FTSE 100 shares for many people, especially those who have a longer time frame.
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FTSE 100 shares — the comeback kid
The most famous index in the UK is the FTSE 100, which began in 1984. Most companies in the index are multinational conglomerates. In addition, the FTSE 250 index consists of the 101st to the 350th largest companies listed on the LSE. It was launched in 1992. Companies in it usually have a more domestic focus.
Over the past several decades, there have been many market crashes, economic downturns or political uncertainties that have adversely affected share prices. Yet within several months, our economy and the indexes have always turned around. Many stocks have ended up making a new high within several years.
Scholars will possibly study the current period in history for some time to come. The full health and economic effects of the Covid-19 pandemic are still unclear. The rapidity of the market crash has been unprecedented.
However, as retail investors, we should stop worrying about the daily volatility in the markets. After all, most people have other ‘life issues’ on their minds besides FTSE 100 shares. We work some and also spend time with our loved ones. Instead of worrying, we need to invest a part of our income regularly irrespective of what happens in the markets on a given day. Because after some months, equity markets typically recover.
Why I’d diversify across sectors
What would you rate as one of the most reliable safeguards against stomach-churning market volatility in the stock market? I would say ‘diversification’ within your share portfolio.
For example, let us assume you had invested £1,000, 10 years ago, in July 2010, in several FTSE 100 and FTSE 250 shares. Below, I’d like to show you how much your investment would be worth now, based on a buy-and-hold strategy and share price appreciation:
- IT and software group Aveva: £3,000
- Housebuilder Bellway: £4,100
- Developer of veterinary products Dechra Pharmaceuticals: £7,400
- Life-saving technology group Halma: £8,200
- Sports and casualwear retailer JD Sports Fashion: £16,600
- Paper and packaging company Mondi: £3,600
- Technologically-focused online grocer Ocado: £12,800
Put another way, a modest investment in a range of companies in various sectors would have meant a sizeable capital appreciation. These numbers hold despite the market drop since early 2020.
Many shares recovered from their lows after the Great Recession years of 2008/09 in a matter of a few years. Before too long, share prices of stable companies will likely recover once again.
July might be a good month for you to revisit your stock holdings to see which stocks should be in your portfolio following the recent market crash. A share portfolio constructed of different kinds of companies and sectors will, on average, yield higher returns and enable you to ride out the volatility of the market.