Why I think the stock market crash could help you retire early

Investing during the stock market crash could be the best financial decision you’ll ever make. Roland Head explains how he’d start investing today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re hoping to retire early, you may be thinking that this year’s stock market crash is bad news. I’d disagree. I think it’s great news.

Why? It’s simple enough. When your local supermarket slashes the price of your favourite tipple, you stock up. Stocks and shares are no different. I’ve been buying extra since March to make the most of the price reductions we’ve seen this year.

I think the market offers good value

Legendary US investor Warren Buffett once said that “you pay a very high price in the stock market for a cheery consensus”. This is why investing after a stock market crash can be a great experience. All the hype and bullishness that was present beforehand is gone.

Instead, investors are nervous and uncertain. As a result, stock market valuations are lower. This allows you to buy shares in good companies without paying extra for a rosy outlook.

Admittedly, the rapid rebound we’ve seen since March’s stock market crash means that UK shares aren’t exactly dirt cheap. But the FTSE 100 is still down by about 20% since the start of the year.

In most cases I’d say stocks are now fairly priced, rather than overpriced. Back in January, most shares looked expensive to me.

Stock market crash investing: it’s not easy

The difficulty is that buying stocks during a crisis isn’t easy. What if the coronavirus pandemic takes longer to resolve than expected? What if the global economy plunges into a deep, lasting recession?

No one knows what will happen next. But I am certain that over the long term, the world will move on from this difficult period. Good businesses will return to growth and dividends will get paid.

Buying today when uncertainty is high should mean that you’ll enjoy bigger gains in the future, when conditions improve.

What about dividends?

We’ve seen an unprecedented set of dividend cuts and cancellations since the stock market crashed in March. If you were planning to rely on the income from your portfolio, you might need to delay your retirement unless you’ve already built up a cash buffer to fund your living expenses.

However, many companies are still paying dividends. And I expect that many of those that have suspended their payouts will restart distributions next year, if not before.

Once again, buying now should put you in a better position in the future.

Stock market crash investing: how I’d start

If you’re new to investing, I’d start by opening a Stocks and Shares ISA, then drip-feeding money each month into a FTSE 100 index fund. The value of this will rise and fall with the market, and you’ll also benefit from all the dividends paid by FTSE 100 firms.

Once you’re comfortable with this, you might want to consider building up a portfolio of shares with the potential to outperform the market.

By investing during the stock market crash and building up a portfolio of quality stocks, I’m confident that you’ll improve your chances of being able to retire early.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head 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.

More on Investing Articles

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »