If I look back at the historical performance of the FTSE 100 over the past few years, I can observe a lot of things. One point is that any crash in the FTSE 100 has been swift and harsh. Yet it’s always been followed by a strong recovery. With this in mind, here’s how I would take advantage of the move lower over the past few days.
Not wasting time
The crash in the FTSE 100 over the past week has been well documented. Yesterday the market bounced over 1.5% higher, showing that maybe the slump is already over. In that case, I’ll want to act quickly to avoid missing out.
In fact, that’s the first way I’d try and take advantage of things, by moving swiftly! Sometimes it’s prudent to have sat on the sidelines and waited for when a particular stock takes a tumble.
When I look at the recent dips in the FTSE 100, with shares then moving higher in a short period, this also makes me not want to miss the boat. With the stock market crash last year, the market rallied a thousand points from the lows in just over a week.
I accept that past performance is no guarantee of future returns, so I always need to be careful in this regard.
Investing selectively
The second way I’m taking advantage of the FTSE 100 crash is being targeted with where I’m investing. With the drop caused by a mix of inflation and Covid-19 fears, I can be selective. So I’m avoiding stocks sensitive to increases in Covid-19 levels, such as airlines and retailers with a heavy reliance on physical stores.
On the other hand, I’d be happy to buy stocks that can do well in a Covid-19 environment and have an element of necessity about them. For example, DIY stores and supermarkets.
Enhanced yields from the FTSE 100 crash
Finally, I’d try and take advantage of the dip by buying companies with higher dividend yields. The dividend yield is calculated by looking at the ratio between the share price and the dividend per share. The lower share price from many stocks this week will mean the dividend yield has risen.
For example, there are currently a dozen shares with a yield of 5% or higher. If shares rally from here, this yield will likely decrease if the dividend per share stays the same. So taking advantage now could allow me to boost my passive income from these dividend shares.
Dividends aren’t always guaranteed, so the risk here is that if the FTSE 100 has a further crash, companies might be forced to cut dividends. This happened during 2020 for some stocks. I therefore need to be careful in selecting dividend shares that are sustainable and not just pick them due to a high yield.
Overall, the FTSE 100 crash in recent days allows me several opportunities. Although I do need to be careful, I think the risk/reward stacks up!
