This year’s stock market crash caught many investors by surprise. However, it was also an excellent opportunity for long-term investors to buy cheap UK shares.
Studies show that the best way to build a fortune in the stock market is to buy shares when they’re trading at low levels. And one of the best ways is to invest in a stock market crash.
This might be challenging at the time, but investors who are brave enough to jump in at the bottom may be well-rewarded over the long run.
Stock market crash investing
Buying investments in a stock market crash can be a risky business. It can also be extremely profitable if done right. Following a couple of stock-picking rules may help investors avoid losses when picking stocks.
For example, here at the Motley Fool, we firmly believe that high-quality businesses are the best stocks to earn over the long run. That’s especially true after a stock market crash. Companies such as consumer goods giant Reckitt Benckiser, which has sizeable profit margins and owns some world-leading brands.
Shares in this giant may be more expensive than other businesses. However, it could be worth paying the premium to buy into the quality growth story.
It may also be sensible to focus on globally diversified corporations, such as financial services giant Prudential. This company generates a large percentage of revenue from Asia and the US, which means it’s much less reliant on one particular economy. This international diversification could help the business outperform UK-focused firms over the next few years.
Another sensible technique that might be worth following to find the best stock market crash bargains is to avoid any stocks with a lot of borrowing. Companies with a pile of debt are usually the most significant casualties in an economic downturn. The best way to navigate this issue may be to avoid these companies altogether.
The road to a million
Following these rules could help you make the most of the stock market crash. It may also help you build a million-pound fortune over the long run.
For example, over the past decade, both Reckitt and Prudential have produced an average annual total return of 12% for investors. At this rate of return, an investment of £2,500 a month in each company would be worth £1.1m today.
These figures are only guidelines, but they show just how easy it could be to make a million in the stock market buying high-quality stocks at a depressed price.
You don’t have to use Prudential or Reckitt either. After the stock market crash, there’s a host of cheap blue-chip companies on the market.
These companies may produce substantial total returns for investors in the years ahead as the economic recovery gets underway. By focusing on these high-quality blue-chips with low levels of debt, investors may be able to build a significant financial nest egg.
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Rupert Hargreaves owns shares in Prudential. The Motley Fool UK has recommended Prudential. 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.