April might mean a new month and a new quarter, but it doesn’t mean that existing risks have disappeared. Risks include the continued war in Ukraine along with the tensions between Russia and the West. Here in the UK, we have the cost of living crisis, with spiralling inflation and energy costs. If this triggers a stock market crash, here’s my game plan for putting £2,000 of cash to work.
Buy the dip, but carefully!
Whatever specifically triggers a stock market crash will affect where I choose to invest my money. The fact is that some stocks will fall for good reasons, but others will simply get caught up in investor fear. What I need to do is sift through the likely sea of red and find which stocks are worth buying.
For example, let’s say that energy prices continue to move higher and this causes a stock market crash. I’d most likely steer clear of some energy companies that would see a squeeze on their finances. Property companies like Rightmove could also struggle, as people conserve funds by not moving. This could also spill over into some retailers, as consumers have less disposable income.
On the other hand, I’d buy commodity stocks like Glencore and some oil names like Shell. If energy prices are rising, there’s a good chance oil will be high too due to the correlation.
The above thinking can be replicated based on several different scenarios that could have an impact on the market. In theory, during a crash, all stocks would fall. If that happens, I’d deploy some of my £2,000 straight away, but only to the companies that are fundamentally sound. As for the others that could actually struggle, I’d steer clear in the short run.
Being patient during a stock market crash
Apart from working out where to invest, I also need to think about how I’d invest. History shows that a crash usually doesn’t last that long. However, during the short period, the market can fall extremely rapidly day by day.
Therefore, I want to be patient when deploying my £2,000. I don’t want to invest it all in one go, as the market could fall another 10% or more in the space of a few weeks. Rather, by investing in £500 chunks, I can have several bites at the cherry on the way down.
This takes pressure off me trying to predict and time where the bottom of the market could be during such a crash. It also allows me to average the buying price of my favoured stocks.
Ultimately, I don’t know whether the factors mentioned at the beginning have the potential to drive a market crash. I’m not holding my breath, and will continue to invest as normal. But by keeping some cash on the side, it will allow me to implement my game plan should things turn sour shortly.
