Investors are getting jumpy again, anticipating another leg of the stock market crash. Analysts are warning the recovery after the dramatic slump in March has gone too far. They say investors are being too optimistic. The recovery will be slow. The FTSE 100 will crash again.
This sudden burst of negativity could deter many from investing in cheap FTSE 100 shares today. I can understand why some are fearful. These are uncertain times. However, holding back now could be a mistake.
The first thing to say is that nobody knows whether a stock market crash is coming. I don’t care how clever they are, or how big their hedge fund is. There are simply too many variables. Second-guessing market movements is even more hopeless when shares are volatile, like today. Share prices can tear off in any direction, at any moment.
Outside forces also play a part. The reason why the FTSE 100 and other global markets bottomed out on 23 March occurred when the US Federal Reserve announced a trillion-dollar stimulus plan that settled investor nerves.
A stock market crash cannot be predicted
Don’t let fears of another stock market crash deter you from buying cheap FTSE 100 shares today. Yes, they may be cheaper tomorrow, but they could just as easily be more expensive.
Some will be nervous about paying in a big lump sum. I would be too. That’s why I would recommend drip-feeding money into this market. Pay in smaller sums of £500, or £1k, whenever you’ve cash to spare.
You can take advantage of any dip in the market, to pick up your favourite stocks at a reduced price. If the stock market crashes after you’ve paid in money, don’t panic. With luck, this should only be a short-term ‘paper’ loss. Share prices will recover at some point. If you hold for at least five or 10 years, and ideally far longer, you’ll still end up well ahead.
And if markets fall again, your strategy is simple. Buy more shares at the lower price.
I’d go hunting for FTSE 100 bargains
Don’t hold off for another stock market crash, hoping for the perfect buying opportunity. You’ll almost certainly never find it. If you do, it’ll be sheer dumb luck. What you can do is take advantage of today’s reduced valuations, to buy FTSE 100 shares at relatively cheap prices.
We may get a V-shaped recovery, we may not. Nobody knows that either. All the clever bods at the Bank of England don’t. If you’re investing for retirement over 10, 20, 30 years or more, it doesn’t matter that much. Buying shares today will almost certainly pay off.
By the time you retire, today’s stock market crash will be receding from memory. Yet the bargain FTSE 100 companies you buy today will still be working to make you richer.
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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.