The Motley Fool

The FTSE 100’s crash could help liberate you from the State Pension

2018 has been a rough year for investors everywhere, and the FTSE 100 has not been immune. At the time of writing, it stands at 6,882, down more than 10% year-to-date. October was tough and December has been brutal, at times, even if the index is currently staging a recovery, up 1.57% this morning.

Volatile times

So where does the index go next? I’ve no idea. Nobody can consistently predict future stock market movements. If they could, they’d be trillionaires. But one thing we can say with some confidence is that volatility is back, and with a vengeance. If that sounds scary, it doesn’t need to be, providing you’re investing for the long term. In that case, you can afford to overlook dramatic short-term swings in share prices, because you are looking far, far ahead of them.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

What volatility does offer you is a buying opportunity. You could select a low-cost tracker such as the iShares FTSE 100 ETF, or HSBC FTSE 100 Index, then top it up whenever share prices dip. That way, you’re picking up stock at reduced prices and will benefit when the long-term recovery finally comes.

Ups and downs

There’s no guarantee when that recovery will come, of course. The tracker could have further to fall. If that happens, then you should invest a little more at the new lower price, if you have a bit of money to spare. Too many investors prefer to buy when investor sentiment and share prices are high, but you need to do the opposite. Shun the herd by pumping money into your fund when spirits are low and share prices are cheaper. Then hold on for the future.

The next thing you must do is reinvest your dividends straight back into your fund. Next year, the FTSE 100 is forecast to yield a massive 4.9%, due to generous company payouts. That’s an all-time record high, and you can claim a piece of the action with your tracker. By reinvesting those dividends, you buy up more units in your fund, turbocharging its growth.

Compound glories

This way you actually benefit if markets drop, because your reinvested dividends will pick up more stock, which will be worth more when markets recover. This is one of the hidden glories of investing, as your wealth compounds over time.

So what has this got to do with the State Pension? You probably don’t need me to tell you it only offers the most basic of incomes, around £8,500 a year. To enjoy a comfortable retirement, you need to invest under your own steam over the decades. This means stocks and shares, rather than a savings account or cash ISA, where you will be lucky to get 1.5% a year.

Second income

Today’s volatility gives you an opportunity to build up a position in the FTSE 100, or individual company stocks if you prefer that. Markets look risky right now but drip-feeding money in, either lump sums when markets dip, or a regular monthly direct payment, can turn this to your advantage and help free you from State Pension misery.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

harveyj holds the iShares FTSE 100 and HSBC FTSE 100 Index but has no position in any other share 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.