Listening to the headlines, we could be forgiven for thinking we’re in the grip of a devastating stock market crash. In recent news, I see headlines proclaiming the “worst year for stock market investors in a decade.”
Hang on a minute. We’re investing for the long term and hoping to buy shares as cheaply as possible for years to come, aren’t we? So wouldn’t a fall make this one of the best years for stock market investors?
I mean, if global food prices were tumbling, we’d hardly call that the worst year for gluttons in a decade. When it comes to shares, I’m a glutton.
The UK stock market is holding up just fine anyway. At the time of writing, the FTSE 100 has fallen just 1.4% over the past 12 months. So much for the “stock market rout” that I’ve been reading about.
To be fair, some of the world’s stock markets have been having a rough time of it. Specifically, it’s US markets. But I can see a good reason for the difference.
Stock market differences
The US is home to a greater range of pioneering, high-tech companies than most countries. The economy, regulatory environment, and relatively low taxation all serve to make the US an attractive place for innovators to set up shop.
Over this side of the pond, we’re a far more conservative lot. We don’t even have our own dedicated technology index, like the NASDAQ.
Instead, the FTSE 100 is filled with mature, blue-chip companies that have been doing the same things for decades. But that’s good too.
A five-year comparison of US vs UK stock markets is telling. Over that period, the FTSE 100 is down 5%. But despite this year’s falls, the S&P 500 has still gained 51%. And the NASDAQ is up 73%.
UK growth?
Possibly the closest we have to a growth index here in the UK, the FTSE 250 has… erm, also dipped 5% in five years.
I could suggest that the Footsie hasn’t crashed simply because it’s in a perpetual state of crash anyway. So maybe the UK stock market won’t crash in 2022, because it’s already down there.
What does this mean for investors? For one thing, I think the variety of stock market indexes on either side of the pond is great for us.
Those who invest in US stocks should simply expect more volatility. There’s greater potential reward there, and so there has to be more risk.
Lower-risk income
Don’t like risk? The FTSE 100 is home to many stocks offering reliable long-term dividend income, even if we leave out the cyclical miners and the oilies enjoying a short-term boost.
Imperial Brands offers a dividend yield of 8%, Persimmon is on a potential 12% yield (including a special dividend), and M&G looks set to deliver 10%, to mention just three.
So are we heading for a new stock market crash in the UK? I think the chances are relatively small, given our seeming perpetual crash state here. But if we don’t see one, I’ll be disappointed, because I’d like to buy more long-term dividend shares at even lower prices.
