It’s fair to say that Q1 2020 was terrible for the FTSE 100. Rocked by the economic uncertainty associated with the coronavirus, the blue-chip index fell from 7,540 points to 5,670 points over the opening three months, which represents a fall of around 25%. That’s the worst quarterly performance since 1987, when the index crashed spectacularly on ‘Black Monday’.
There’s no doubt this shocking performance from the FTSE 100 will have hit many investor portfolios hard. With stock market volatility spiking to Global Financial Crisis (GFC) levels recently, there’s been nowhere to hide. Worryingly, there could be further market falls to come. This all begs the question – what should investors do now?
What should investors do now?
If you’ve checked your investments recently, the chances are you were shocked at the drop in portfolio value. While the FTSE 100 slumped by a quarter, many individual stocks fared far worse.
Royal Dutch Shell shares, for example, plummeted 39% over the three-month period. Lloyds Bank shares crashed 49%. Meanwhile, easyJet shares tanked 60%. My own investment portfolio – which includes a mix of FTSE 100 dividend stocks, small-cap growth stocks, and international stocks – has been decimated.
In this kind of situation, the most important thing to do is to stay calm (you can find some great tips on how to stay calm during stock market turbulence here) and stick to your long-term investment strategy. You shouldn’t let emotions, such as fear, drive your investment decisions, as this can lead to irrational financial moves.
It’s worth remembering any losses that’ve come about as a result of the recent stock market crash are just paper losses. You haven’t actually lost any money until you sell your shares.
It’s also worth remembering the stock market has crashed many times before and always bounced back. During the GFC in 2008/2009, the FTSE 100 slumped from 6,500 points to just 3,500 points. Yet within the space of a few years, the index was back at the 6,500 points level.
Given that stocks have always recovered from crashes in the past, it makes sense to think long term and hold on to your investments during this uncertain period, as they’re likely to eventually recover.
Finally, if you have cash on the sidelines, you may want to consider taking advantage of the recent stock market weakness and buy stocks while share prices are lower. This could boost your portfolio significantly when stocks begin rising again.
Recently, plenty of high-quality stocks have been trading at levels not seen for years. Take alcoholic beverages champion Diageo, which looks set to enjoy long-term growth as wealth rises in the emerging markets. A few weeks back, it was trading at around 2,050p – a level not seen since 2016. Similarly, shares in Smith & Nephew – a healthcare company poised to benefit from the world’s ageing population – have also recently dropped to 2016 levels.
If you’re a long-term investor, as I am, these kinds of share-price falls could be a real opportunity.
Edward Sheldon owns shares in Diageo and Smith & Nephew. The Motley Fool UK has recommended Diageo and Lloyds Banking Group. 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.