If you’re hoping to retire early, you may be thinking that this year’s stock market crash is bad news. I’d disagree. I think it’s great news.
Why? It’s simple enough. When your local supermarket slashes the price of your favourite tipple, you stock up. Stocks and shares are no different. I’ve been buying extra since March to make the most of the price reductions we’ve seen this year.
I think the market offers good value
Legendary US investor Warren Buffett once said that “you pay a very high price in the stock market for a cheery consensus”. This is why investing after a stock market crash can be a great experience. All the hype and bullishness that was present beforehand is gone.
Instead, investors are nervous and uncertain. As a result, stock market valuations are lower. This allows you to buy shares in good companies without paying extra for a rosy outlook.
Admittedly, the rapid rebound we’ve seen since March’s stock market crash means that UK shares aren’t exactly dirt cheap. But the FTSE 100 is still down by about 20% since the start of the year.
In most cases I’d say stocks are now fairly priced, rather than overpriced. Back in January, most shares looked expensive to me.
Stock market crash investing: it’s not easy
The difficulty is that buying stocks during a crisis isn’t easy. What if the coronavirus pandemic takes longer to resolve than expected? What if the global economy plunges into a deep, lasting recession?
No one knows what will happen next. But I am certain that over the long term, the world will move on from this difficult period. Good businesses will return to growth and dividends will get paid.
Buying today when uncertainty is high should mean that you’ll enjoy bigger gains in the future, when conditions improve.
What about dividends?
We’ve seen an unprecedented set of dividend cuts and cancellations since the stock market crashed in March. If you were planning to rely on the income from your portfolio, you might need to delay your retirement unless you’ve already built up a cash buffer to fund your living expenses.
However, many companies are still paying dividends. And I expect that many of those that have suspended their payouts will restart distributions next year, if not before.
Once again, buying now should put you in a better position in the future.
Stock market crash investing: how I’d start
If you’re new to investing, I’d start by opening a Stocks and Shares ISA, then drip-feeding money each month into a FTSE 100 index fund. The value of this will rise and fall with the market, and you’ll also benefit from all the dividends paid by FTSE 100 firms.
Once you’re comfortable with this, you might want to consider building up a portfolio of shares with the potential to outperform the market.
By investing during the stock market crash and building up a portfolio of quality stocks, I’m confident that you’ll improve your chances of being able to retire early.
