How I’m using the stock market crash of 2020 to help me retire wealthy

Shrewd investors such as Warren Buffett know that emotions can send investors in the wrong direction. But a stock market crash brings opportunity.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

One of the facts of life for an investor is that shares go down as well as up. Sometimes, they go down a lot, and we end up calling the event a stock market crash. But these things can be transitory. Indeed, another fact of life for an investor is that shares can go up as well as down.

Last week, for example, the markets were plunging. This week they’re snapping back up again. Even the big move down in the spring was followed by a powerful move back up again for many stocks. And some have even exceeded their pre-coronavirus-crisis highs.

Fighting emotions a stock market crash can arouse

But I admit, big movements in the stock market can stir up some powerful emotions. Last week, I’m guessing many people, like me, were fighting to suppress negative feelings and worrying about the potential for a big stock market crash. This week, those same people will be trying to keep a lid on feelings of elation because the shares in their account are rising again.

However, shrewd investors such as Warren Buffett have known for decades that such emotions can send investors in the wrong direction. When we are all worried about crashing markets and thinking about selling our shares, we really should be considering buying. And when we feel elated, it’s probably worth being cautious about buying stocks.

Indeed, the stock market crash of 2020 did a good job of knocking the froth from the valuations of some great companies. So, I think that in the middle of all the market volatility we’ve been seeing, there are some decent opportunities to buy cheap shares with good-quality underlying businesses.

And buying cheap shares is a good idea for me because I plan to hold them for a long time. In fact, I think a programme of investment now could help me use the stock market crash of 2020 to retire wealthy. Indeed, the opportunity now is that good-quality businesses and their shares could recover in the next bull market.

There could be prosperity ahead

But it’s not only the stock market that will likely recover. I also believe the world economy will recover. And, over the next couple of decades, I think I could see the businesses behind my shares benefit from a new era of growth and prosperity. Indeed, if I choose carefully, some of my shares will likely deliver outstanding returns from today’s level as they prosper and expand their operations.

Meanwhile, I’ll be sure to reinvest all my returns along the way, such as dividends. And in that manner, I’ll be compounding my returns. So, rather than fearing another stock market crash, I’m preparing for one by keeping my watchlist of attractive stocks up to date. If share prices dip and offer quality bargains, that’s the time for me to pounce and buy those investments.

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.

Kevin Godbold has no position in any share 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »