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How I’m investing in the worst FTSE 100 crash in a generation

The FTSE 100 is uncertain, but that doesn’t mean your financial future has to be. Interest rates are near zero, so stashing your money in a Cash ISA will do nothing to help your wealth.

And while the index is down 23% in the last three months, there are still ways to secure your future prosperity. Dividends, share price growth and stability all remain extremely important to me as a long-term investor.

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Bag big FTSE 100 bargains

The investment decisions you make today will ripple far into the future. If you have done your research and you think you’ve spotted an undervalued FTSE 100 bargain, go ahead and buy. With a long enough time horizon, buying and holding good companies is still the best and most proven way to enrich yourself.

No matter how far markets fall, they always bounce back, eventually. You might have to wait three years, or five. But pick strong companies, try not to overpay, then simply sit on your investment. You’ll reap the best rewards.

One thing to note though. The coronavirus-induced economic setback means that traditional value measurements like price-to-earnings ratios are less reliable indicators than usual. Companies are having a tough time predicting what they could earn in the rest of 2020 and beyond. Lifting lockdown restrictions might happen soon, or it might take much longer.

But as investing legend Peter Lynch sagely wrote in One Up On Wall Street: “Companies with no debt can’t go bust.” So I would focus on FTSE companies with low or no debt, strong balance sheets to ride out the storm, operating in sectors that make money whether the economy is doing well or struggling.

For example, there are some classic defensive FTSE 100 shares I think every good investor should consider.

They are: UK utilities infrastructure operator National Grid, household products giant Unilever and global pharma firm GlaxoSmithKline. Depending on your ethical investing stance on addictive products, I’d add British American Tobacco and Diageo to that list as well, where dividends are safer than most.

Some 45%of UK companies have now scrapped (or are preparing to scrap) their dividends in Q1 2020. That’s according to the widely-cited Dividend Monitor report from Link UK.

FTSE 100 diversification

Putting too much weight on one particular sector is the surest way to drag your portfolio down. For example, on 20 April US oil futures dropped below zero for the first time ever. Global demand has cratered under lockdown while storage is reaching capacity and the industry faces some historic bankruptcies.

If all my net worth was tied up in energy stocks, I could be looking at a pretty devastating blow. Instead, I’m spreading my investments across FTSE 100 shares in tech, financials, consumer durables, telecoms, entertainment and more.

Run your winners

The strongest advice I’d give is to keep hold of your best-performing investments, FTSE 100 or otherwise.

For me, that’s the likes of Team17, Microsoft and Frontier Developments. These are highly profitable stocks that have done well out of lockdown with more people staying at home.

These are the ones that will see you through the inevitable torrent of pain that’s coming from a bear market and a global recession worse than the Great Depression.

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Tom Rodgers currently owns shares in Microsoft, Team17, Frontier Developments, GlaxoSmithKline and Unilever. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline, Microsoft, and Unilever. The Motley Fool UK has recommended Diageo and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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.