The stock market crash has been a rollercoaster ride for investors, although the trajectory has mostly been down. The FTSE 100 seems to have found a floor at around 5,000, but another bout of panic could still smash it lower. This year’s deadline for using your £20,000 Stocks and Shares ISA allowance is fast approaching, so what should you do?
If your income is holding up through the coronavirus crisis and you’ve money to invest, the stock market crash could be a fantastic opportunity to invest tax-free through a Stocks and Shares ISA, at today’s greatly-reduced prices.
Nobody knows where the FTSE 100 will go next. That’s how it is during a stock market crash, especially one on this scale.
Stocks and Shares ISA time
This isn’t the time to commit any short-term savings to a Stocks and Shares ISA, although in truth, it never is. You should never invest money you might need for at least five years, and preferably far longer. The Covid-19 crisis only underlines the importance of that traditional investment advice.
So, if you’ve cash in the bank you may need in the uncertain weeks ahead, that shouldn’t go into shares today. On the other hand, now may be a terrific time to invest long-term money into top FTSE 100 blue-chip companies that have been ravaged by recent events.
We’re all racked with uncertainty right now, but in five or 10 years, the world will hopefully have moved on, and so will share prices.
Short-term pain, long-term gain
Many companies are cutting dividends right now. Pub chain JD Wetherspoon, high street retailer Marks & Spencer Group and housebuilder Crest Nicholson Holdings have all scrapped payouts this morning, and more will follow.
However, this is the emergency phase of the coronavirus crisis, when government, businesses, and ordinary people have to take drastic measures to survive. If you weren’t taking a bigger risk than usual, the FTSE 100 wouldn’t be this cheap.
The rewards of investing in a Stocks and Shares ISA are greater too, provided you plan to hold for the long term. Those dividends will return, gradually. Share prices will recover when the stock market crash burns itself out. Today’s bargains could turn into tomorrow’s recovery heroes.
I would focus on companies with strong balance sheets, low debt, loyal customers, and a strong market position. They’re best placed to withstand the downturn, and make maximum use of the recovery, as rival companies potentially go bust.
Stock market crash won’t last forever
You’ll have your own favourites. Mining giants such as BHP Group and Rio Tinto could do well when the economy picks up again. Oil majors BP and Royal Dutch Shell have fallen so dramatically they may be due a rebound.
Pharmaceutical stocks like AstraZeneca and GlaxoSmithKline offers solidity. If you’re feeling brave, now could prove a good time to invest in a Stocks and Shares ISA.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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.