The FTSE 100 stock market crash of 2020 may not yet be over. Risks such as a second wave of coronavirus and increased tensions between the US and China could weigh on company profits and investor sentiment over the coming months.
Despite this, now could be the right time to start buying a diverse range of high-quality businesses. By taking a long-term view of your investments and ignoring market ‘noise’ you could generate high returns that increase your chances of making a million.
With unemployment on the rise and GDP forecasts downgraded, the economic outlook has deteriorated as the same time as the market crash. Therefore, owning shares that have solid balance sheets, wide economic moats and sound strategies could be highly advantageous.
They may stand a better chance of surviving what could be a major recession. They could even go on to produce higher profitability in the long run by taking market share from their weaker peers.
Identifying high-quality businesses can be undertaken by any investor. Look at a company’s annual report and assess factors such as its debt levels, customer loyalty and track record of financial stability. Doing so could help you focus your capital on those businesses that have the most attractive risk/reward opportunities at the present time.
Diversification in a market crash
Diversification is often viewed as a means of reducing losses in a market crash, rather than improving your gains. However, the two go hand-in-hand. Less reliance on a smaller number of companies could improve your returns should they experience financial difficulties.
Diversifying across numerous sectors also enables you to benefit from high returns in a variety of industries you may not necessarily have otherwise invested in. This could be especially advantageous in a period where it’s difficult to know which industries will recover quickly. And also which sectors will struggle to return to their pre-coronavirus levels of growth.
Since the cost of sharedealing has fallen significantly over recent years, diversification is available to almost all investors. It could be a simple but effective means of improving your chances of making a million.
Ignoring other investors
Investor sentiment has changed since the FTSE 100’s market crash in March. Now, many investors are bullish about the stock market’s prospects. However, that can quickly change if share prices experience a sudden downturn.
Therefore, it could be a good idea to ignore the views of other investors over the coming months. Due to the unprecedented situation involving coronavirus, it’s exceptionally difficult to predict the short-term movements of the stock market.
However, the FTSE 100’s track record shows that a recovery in the coming years is highly likely. This could mean buying stocks during a market crash is a sound means of boosting your chances of generating a seven-figure portfolio.
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.