MENU

Celebrate – this is exactly the ‘crash’ stock markets needed!

Image source: Getty Images.

Hurts, doesn’t it? To see your worldly wealth crashing in value. To see the FTSE 100 threatening to slip below 7,000 again, when it took so long to break through that barrier. To see your US and Asia holdings slump for a second time, just when you thought the worst was over.

Smile

It also hurts when you buy the dip, only to find another dip just round the corner. I know. That happened to me on Thursday. There is only one thing to do when investing hurts this much. Cheer up.

We suspected this was coming. With the Shiller index showing US share prices trading at 1929 valuations, something had to give. No stock market bull run lasts forever, and this was already the second longest in history, tearing upwards for nearly nine years.

Double dip

It was nonetheless a shock, with the Dow Jones reporting its largest ever single day points drop (although not the largest ever percentage drop). Even as I bought the dip I suspected there would be an after-shock. There are usually several. Expect more.

Yet still I say celebrate. You are alive. Your portfolio is probably trading higher than it was a year ago. 2017 was a stormer, as was 2016. These things happen. They are to be expected. If this week’s volatility has given you sleepless nights, you shouldn’t be in the stock market at all.

Circle of wealth

The reason you invest in stocks and shares is that they beat almost every rival investment over the longer run. Your wealth grows in two ways: through share price rises and regular dividend payouts. The growth has temporarily slipped, but the dividends will continue to flow. If you automatically reinvest them, they will pick up more stock at today’s lower prices. As I said, be happy.

There is a price to pay for everything, and with stock markets the price is volatility. In the long run, shares will make you money. In the short-term, nobody knows what they will do. That is why should only invest money you will not need for five or 10 years, and preferably 20, 30 or 40 years. If you do that, you can treat any correction as a blip. Or better still, a buying opportunity.

Nobody knows

The other reason to celebrate is that many felt uncomfortable putting money into an apparently overvalued stock market. You will get better value for your money today, as good companies are now available at knock-down prices. Remember: the global economy is still forecast to grow strongly this year.

Markets could have further to fall. You will never get your timing exactly right – I certainly didn’t on Thursday. You will never buy at the very bottom of the market. Nobody knows where share prices will go next, whatever they may claim. It is certainly a mystery to me.

The one thing I do know is that something I want to buy, in this case shares, is cheaper than it was a week ago, and that is always something to celebrate.

Buying top companies in the middle of a market correction is a great way for long-term investors to get rich on the stock market, but it is only one strategy.

To find out how you can build your wealth by investing in stocks and shares simply download this FREE Motley Fool report, 10 Steps To Making A Million In The Market.

You don't have to be a stock-picking genius, ordinary people can become astonishingly wealthy by investing in stocks and shares.

This no-obligation report shows you how to do it, step-by-step. To find out more click here now.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.