This stock market crash could be a great time to start investing £500 a month. Investing money in a stock market crash might be a terrifying prospect at first but, over the long term, this effort should pay off.
Investing in a stock market crash
Research shows the best time to invest in the stock market is when everyone else is selling. However, picking individual stocks in this sort of environment can be challenging. As such, a better option could be to buy a low-cost index tracker fund.
The great thing about index tracker funds is they do all the hard work for you. You don’t need to pick stocks, or rely on investment managers. Tracker funds only buy and hold the market, which is an easy way to profit from the wealth-creating power of stocks over the long term.
Indeed, research shows that over the past 120 years, UK equities have returned around 5% per annum, after inflation. Including inflation, the market has returned approximately 8% per annum.
During this period, the world has seen two major global conflicts and numerous economic crisis. There’s been a stock market crash roughly once every 10 years. Despite these setbacks, the market has always come back stronger.
Time to start investing
Investing £500 a month will enable you to benefit from the wealth-creating power of the stock market over the long term without having to spend hours picking shares.
Most online stock brokers will let you set up a regular investment plan from as little as £50 a month. All you then have to do is choose a tracker fund to buy.
There are plenty of options to choose from. However, the best is a FTSE 100, FTSE 250, or FTSE All-Share tracker fund.
When you’ve decided which fund you want to buy, all you need to do is sit back, relax, and let the online stock broker take care of the rest.
Investing in a stock market crash might seem scary at the time. However, it’s vital to maintain a long term perspective when you’re investing for the future.
At one point in March, the UK’s leading stock indexes had fallen as much as 30%. This has happened on several other occasions in the past. But every single time the market has come back stronger.
For example, as noted above, over the past 120 years, UK shares have produced an annual return of around 8%, excluding inflation. At this rate of return, an investment of £500 a month for 50 years could grow to be worth just under £4m.
The market won’t go up every day during this time frame. We’re likely to see another stock market crash at some point. But, over the long run, the stock market should head higher.
There’s no reason to suggest the market will produce a low return over the next three or four decades than it has over the previous 30-40 years.
That’s why it’s sensible to look past the near-term market volatility and concentrate on the long-term wealth-creating power of the stock market. Your wallet will thank you later.
Rupert Hargreaves owns no 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.