Unfortunately, you cannot rule out a second stock market crash. The pandemic is dragging on, and the recovery could be slow and bumpy.
As official figures showed us yesterday, the UK’s GDP fell by an thinkable 19.1% in the three months to May. It grew in May, but only by 1.8%. There is a long, long way to go.
Worse, as the World Health Organisation has pointed out, the coronavirus hasn’t finished its work yet. More than 12m have been infected worldwide, with 500,000 dead. The true figures are likely to be much higher.
The next stock market crash may come
The UK death toll may be slowing, but there’s another outbreak, this time in Blackburn. The US is also in deep trouble. A market crash would not come entirely out of the blue.
I would not expect it to be quite as dramatic as the FTSE 100 crash we saw in March. First, share prices are being buoyed by trillions of dollars in fiscal and monetary stimulus. If we do hit another rocky patch, we may get even more.
Investors should not treat a second market crash as the end of the world. Bear markets have a habit of dragging on, for longer than you think. As we saw during the financial crisis in 2008, they can be marked by periods of recovery.
If the market does crash again, I suggest you be ready for it. When investors panic and sell up, good companies tend to be dumped alongside the bad. This is a great opportunity to go shopping for bargain-priced FTSE 100 shares.
This does not mean you should bank on an immediate recovery. A second crash would shake confidence, and the market may take longer to recover. That is why I would target companies that are likely to be around for the long term.
Some FTSE 100 shares to consider
I have thought long and hard about investing in airlines, but decided the risks outweigh the potential rewards. The same goes for cruise liners such as Carnival. I don’t mind losing money in the short run, but I don’t want to take major gambles.
Personally, I would stick to strong companies like mining giants Anglo American and Rio Tinto, household goods companies Reckitt Benckiser and Unilever, and solid, unspectacular companies like Bunzl and Informa.
You will no doubt have a few top FTSE 100 thoughts of your own. A second stock market crash is the ideal time to buy them.
Focus on companies you would be glad to hold in 10 or 20 years time. Investing is a long-term game. If you are putting money away for retirement, you have plenty of time for the market to overcome the crash and bounce back.
The pandemic will not last forever but you cannot expect an instant economic recovery. What you can do is take advantage of a second stock market crash, by topping up your portfolio. That gives you a real chance of generating enough wealth to get rich and retire early.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival and Unilever. 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.