Despite recovering this week, the FTSE 100 has still lost 2,000 points in the Covid-19 stock market crash, a drop of around a quarter. It was down another 4% this morning to 5,580 at time of writing, and where it goes next is anybody’s guess. Ironically, this actually makes now a good time to invest in a tax-free Stocks and Shares ISA, rather than a bad time.
I’m not suggesting you throw your full £20k allowance into the FTSE 100, as the stock market crash clearly has further to run. However, I do believe it makes sense for long-term investors to take advantage of today’s bargain prices and buy more shares. Don’t fear the stock market crash, but turn it to your advantage.
Imagine your heart is set on a new house, car or smartphone, and its price suddenly drops 25%. You’d buy it, wouldn’t you? People take a different attitude to equities, though. When share prices fall sharply, like now, they don’t rush out and buy them. Many do the reverse and sell.
Stock market crash brings bargains
That’s daft, because it makes just as much sense for people to buy shares after they have fallen in price, as anything else.
In fact it makes more sense, because a Stocks and Shares ISA is an investment in your future. The longer you hold it, the more it is likely to be worth, especially if you reinvest your dividends for growth. You can’t say that about many other purchases.
The reason investors stop buying shares when they are cheap is obvious. Typically, a stock market crash happens when people are feeling worried about the future, as they are now due to the coronavirus outbreak. Many will have seen their income hit hard, of course, and will sadly be in no position to invest.
Use your Stocks and Shares ISA
Fear is an understandable emotion right now. However, those who have money to spare and can master their fear, have a massive opportunity. The FTSE 100 is packed full of top blue-chips that have been hammered by the stock market crash, and are trading at bargain valuations as a result.
You could wait until the outlook is brighter, and the UK and other countries are getting on top of the problem. However, at this point, share prices will soar. We have seen movements of up to 10% in either direction, in a matter of hours.
You cannot expect to buy at the very bottom of the market. What I would suggest is shifting money into a Stock and Shares ISA, to secure your allowance before for the 5 April deadline, rather than losing it for good. Hold most of your money in cash at first, then drip-feed it into the market, over several days or weeks, taking advantage of any dips.
If you are investing in a Stocks and Shares ISA for five, 10, 20 or 30 years, as you should be, you will be glad you acted today.
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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.