Over the last week, global stock markets have taken a huge hit due to tariff uncertainty. As a result, many stocks are currently down 20% or more from their 52-weeks highs. For long-term investors, this could be a major opportunity. If someone has cash sitting in their Stocks and Shares ISA right now, I think it’s time to consider putting some of it to work.
This kind of volatility is rare
It’s not often that we see this kind of volatility, where markets are literally in freefall and major indexes such as the FTSE 100 and the S&P 500 are falling 4% to 5% in a day (for several days in a row).
The last time we saw this kind of thing was in early 2020 at the start of the coronavirus pandemic when the world was faced with huge uncertainty.
Before that, it was in late 2008, during the Global Financial Crisis, when the global banking system was on the brink of collapse.
So, we might not see this kind of market event again for a while. It could be another five years. It could be another 10.
Investing now could pay off
Now, investing in stocks in moments like this isn’t easy. When uncertainty is high and markets are tanking, it often feels safer to sit on the sidelines.
However, history shows that investing during these periods of volatility – when investors are indiscriminately dumping stocks – can pay off in a big way. Had someone put some capital into the S&P 500 index in March 2020 when the index crashed to 2,500, for example, they could have potentially doubled their money in just a few years.
Of course, there are no guarantees that the stock market will recover in the years ahead given the current level of economic uncertainty. A full recovery could take time.
But in the long run, global stock markets have always recovered from crises. I’m fairly certain that in a decade’s time, the current meltdown will just look like a blip on a long-term chart.
Different risk levels
It’s worth pointing out that it’s possible to take on different levels of risk today.
For example, if someone was looking to get into the market but not wanting to take on too much risk, they might want to consider a dividend-focused fund such as the iShares UK Dividend UCITS ETF (LSE: IUKD).
This is a diversified product that focuses on UK-listed companies that pay dividends. Stocks in the fund include the likes of British American Tobacco, National Grid, and Legal & General.
This fund has held up pretty well in the current sell-off. Year to date, it’s only down about 4%. That’s a good performance on a relative basis. This year, a lot of individual stocks have fallen 30% or more.
The best thing about this fund, however, is that investors have two potential sources of return. Not only is there potential for capital gains but there’s also income on offer (the yield is currently about 5.5%).
Of course, this ETF isn’t perfect. If the market rallies hard in the months ahead, it could underperform due its focus on slow-moving dividend-paying companies.
An investor could easily combine this product with a few individual stocks, however. This would involve taking on a little more risk, but it could potentially lead to higher gains in the long run.
