Since its inception in 1984, the FTSE 100 has experienced several periods when a stock market crash has taken place. On each of those occasions, investor sentiment has weakened and there have been major doubts surrounding its capacity to recover.
However, it has been able to produce new record highs following every one of its previous downturns. This has given value investors who adopt a similar strategy to that of Warren Buffett the chance to buy stocks at low prices.
As such, with FTSE 100 share prices being relatively low at the present time, now could be the right time to open a Stocks and Shares ISA to buy a diverse range of companies for the long run.
FTSE 100 stock market crash
The FTSE 100 stock market crash may or may not yet be over. Risks such as geopolitical challenges in the US and Europe, as well as the continued rise in coronavirus cases, could cause stock prices to come under further pressure in the short run.
However, there is likely to be a limited period of time for investors to buy high-quality stocks while they are at attractive prices. Certainly, they could move lower in the short run. However, in the long run they are likely to rise – as has been the case throughout the index’s history following bear markets.
Therefore, now could be the right time to buy FTSE 100 stocks that offer solid financial positions and growth potential at low prices. Over time, they are likely to recover as the world economy’s growth rate, as well as investor sentiment, gradually improve.
Of course, simply buying FTSE 100 shares today is only one part of capitalising on the index’s market crash. Successful investors such as Warren Buffett have generated high returns because they have purchased undervalued shares, and then held them for the long run. This provides the companies they hold with the time they need to implement growth strategies, as well as to benefit from a return to more bullish stock market conditions.
Therefore, whether the stock market rises or falls in the short run, adopting a buy-and-hold strategy could be effective in generating strong returns. It may enable you to make use of the index’s cyclicality as it returns to improved trading conditions.
Stocks and Shares ISA
With a Stocks and Shares ISA being a cheap and effective means of investing tax-efficiently, it could be the ideal means of capitalising on low FTSE 100 valuations. Over time, the index’s return potential could lead to a surprisingly large portfolio valuation that, held outside a Stocks and Shares ISA, attracts significant tax payments.
Therefore, planning ahead through investing in an ISA could be a worthwhile means of using the stock market’s crash to your advantage. It could boost your financial prospects over the long run.
Peter Stephens 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.