Whenever the stock market hits a rough patch, investors often start nervously eyeing their portfolios. After all, there’s nothing more unpleasant than seeing investments crash in value.
Yet while enduring volatility can be a rough ride, it’s also a blessing for investors who know how to capitalise on it. That’s because, when the market panics, often the best businesses are sold off alongside the worst, creating buying opportunities for investors focused on the long run.
So capitalising on these can propel portfolios to new heights, potentially opening the door to an earlier retirement.
The power of a crash
Let’s take a trip down memory lane and explore the stock market at the height of the pandemic. When lockdowns were put in place, shares around the world tumbled. And here in the UK, even the FTSE 100, which has historically been quite resilient, dropped sharply by around 30% in March.
Yet those with their eye on the long term could have used this sudden drop to start snapping up shares at a massive discount. And even when relying on passive index funds, the results would have been tremendous.
Since March 2020, the FTSE 100 has delivered a 126% total return since its lowest point. That roughly translates into an average annualised return of 16% – double its historical long-term average gain of 8%. And even those who were a bit late and bought in September 2020 have still earned an impressive 14% average annual return over the last five years.
The extra gains generated from investing during a volatile market environment have made a massive difference, even for investors following a strategy as simple as drip-feeding £500 into an index fund each month.
| Years | 8% Total Return | 14% Total Return | 16% Total Return |
| 1 | £6,225 | £6,400 | £6,460 |
| 2 | £12,997 | £13,757 | £14,033 |
| 3 | £20,268 | £22,211 | £22,911 |
| 4 | £28,175 | £31,929 | £33,318 |
| 5 | £36,738 | £43,098 | £45,518 |
| 10 | £91,473 | £129,535 | £146,285 |
| 20 | £294,510 | £650,583 | £863,221 |
| 30 | £745,180 | £2,746,486 | £4,376,880 |
Maximising returns
While the FTSE 100 as a whole has outperformed since its 2020 lows, these impressive gains pale in comparison to some of its individual constituents. And for intelligent stock pickers, some even more explosive returns have been unlocked.
For example, Babcock International (LSE:BAB) is up close to 440% since September 2020! That’s the equivalent of earning a 40% annualised return over the last five years – a transformative gain that’s turned £500 monthly investments into just over £92,000 so far – more than double what FTSE 100 index investors have been earning.
Despite unstable economic conditions in 2020, the aerospace and defence business continued to secure new military contracts, resulting in an expansive order backlog. And this trend has only accelerated as geopolitical tensions rise in 2025, resulting in an increasingly bullish sentiment from expert analysts.
Growing global defence spending, paired with improved operational efficiency, has sent Babcock shares flying ahead of the wider stock market. But it’s also important to recognise that dependency on government spending introduces cyclical and execution risks.
Delays or budget cuts could undo a lot of the recent momentum, as could competitive pressures from rival firms like BAE Systems. Nevertheless, Babcock still holds potential worth exploring further, in my opinion. And when another stock market crash eventually emerges, its recent rebound might be set to repeat.
