The stock market crash will have come as a blow to millions of investors. At its lowest point on 23 March, the FTSE 100 had fallen by a third in a few weeks. That kind of dip is always going to hurt, although the damage may be lower than you think. It depends how you respond.
There are plenty of things you should not do in a stock market crash. The first is sell your shares. Unless you absolutely need the money, you should defy the panic and stay invested. History shows that share prices always recover after a crash, provided you give them enough time.
The second thing you should do is buy more shares, if you have any money to spare. A stock market crash is a brilliant time to pick up your favourite UK shares, at greatly reduced prices. Those who bought during the lows in March may already be nicely ahead. The FTSE 100 has put on a 1,000 points since then, a rise of around 20%.
Buy UK shares when they’re cheap
If that sounds a bit nerve wracking, there’s a much simpler strategy. One that means you never need to worry about a stock market crash again. Simply set up a direct debit and invest a regular monthly sum into your favourite UK shares.
Buy a blend of different stocks, combining defensive dividend payers, such as pharmaceutical companies and utilities, with faster growth prospects from the property, financials, energy, telecoms and technology sectors. Invest free of tax through a Stocks and Shares ISA.
Once you have done that, you can afford to ignore the next stock market crash, and the next one, and the next one. Just keep your direct debit running, and you will pick up more stock every month, regardless of where share prices stand at any point.
In fact, you’ll even benefit from a crash. That’s because the money you pay into the stock market will pick up more shares at the reduced price. As will all the dividends you earn, provided you reinvest them. This is how people make money from shares over the longer run. By investing regularly, and ignoring the short-term noise.
The stock market crash could be your friend
This year’s stock market crash has been particularly brutal. It would have been a lot worse if governments and central bankers hadn’t rushed to the rescue, with massive stimulus packages. The global economy could take time to recover from here. We may have to wait for a Covid-19 vaccine before shares really swing back into favour.
If you invest every month, you don’t have to worry about that. Your money will keep picking up UK shares while you wait for the recovery to come. This means you don’t have to time the market, something nobody can do with any consistency. You just wait.
There’s no need to fear the next stock market crash. If you invest every month, you can simply ignore it.
