Every day another investment expert pops up to warn us all of an impending stock market crash. The sell-off may have already begun, with the FTSE 100 and S&P 500 both falling in recent weeks.
Investors have spent most of 2023 looking forward to the day when interest rates peak and potentially start falling. Now they’ve woken up to the fact that sticky inflation means rates are set to stay higher for longer.
They were still digesting that unwelcome news when Hamas attacked Israel, throwing the Middle East back into turmoil. That tipped the oil price back over $90 a barrel, with some warning it could top $150 if the US is drawn into a direct confrontation with Iran.
So much bad news out there
If that happened, the market would likely crash. We’re not there yet, but plenty of experts reckon we will be soon. It’s an anxious time.
As for myself, I don’t know what’s going to happen. And the truth is, neither does anybody else, including those know-it-all doom-mongers. Knowledge is strength, they say. That doesn’t apply if someone is claiming knowledge that they do not actually have.
I prefer to face up to what I don’t know, and I freely admit that I have zero idea where the stock market will go next. There are simply too many variables to calculate it. Knowing this actually makes me a better investor, because I can focus on the things I do understand.
I do know that selling shares in the expectation of a crash is daft, because all too often the crash doesn’t come. That could be the case today too. Yes, it’s an anxious time, but if we weren’t worrying about interest rates and Gaza, we’d find something else to worry about.
I’ve also learned that selling shares after a crash is a really bad idea. It means crystallising what are otherwise just paper losses. Investors who sell also face the question of when to buy back into the market. They invariably get their timing wrong, because markets are impossible to time. That applies just as much to a stock market recovery as a crash. Most investors miss it.
Here’s my plan
So if I refuse to sell before a crash and have no intention of selling afterwards, what do I do? The exact opposite. I buy shares.
2023 hasn’t been the best year for the FTSE 100. It’s down 2.24% year-to-date. With the index yielding around 3.8%, investors will still be ahead, but only just.
I took advantage of the summer dip to build my stake in dirt cheap, high-yielding FTSE 100 dividend stocks such as Lloyds Banking Group, M&G, Smurfit Kappa Group and Taylor Wimpey.
My purchases are all in the red but that doesn’t worry me. First, it means my reinvested dividends will buy more shares at today’s lower price. Second, this is an opportunity to buy more shares in these companies with new money at today’s cheaper prices.
If the much-heralded stock market crash does comes, I’ll buy more. Instead of worrying about a crash, I’ll turn it to my advantage. Then I’ll wait for the recovery. I’ve no idea how long that will take, but since I buy shares with a minimum 10-year view, I can afford to be patient.
