I hope I’ll never again see a pandemic in my lifetime like this one. And, in that sense, the effect Covid-19 is having on the economy and the stock market could be a once-in-a-lifetime event.
An opportunity to buy cheap shares
It could also be a once-in-a-lifetime chance to buy cheap shares. Indeed, rarely do circumstances conspire to crush sectors of the economy like they are right now. And there could be an opportunity to buy cheap shares of fallen stock-market-listed businesses. Given time, those shares may go on to recover as the underlying business operations turn around and prosper in a new era of economic prosperity ahead.
And, never has share trading been as accessible to everyone as it is now. Online share dealing accounts have revolutionised the process of investing over the past couple of decades or so. The ability to research companies and read financial releases is as easy as clicking a mouse. And the transaction costs involved in buying and selling shares have plummeted as the new technology gained traction.
Meanwhile, the coronavirus lockdowns have produced some benefits for people along with the negatives. Indeed, with vast swathes of the economy closed down in the first lockdown in England, the Office for National Statistics (ONS) estimated that more than one-fifth of usual household spending wasn’t possible. The outcome from that situation is that personal savings have shot up because many people have continued to earn.
Now we face lockdown number two. And I can only imagine that personal savings will receive another boost. But there’s an obvious dilemma in that situation – cash savings interest rates are on the floor. In fact, interest rates are so low that it’s probably another once-in-lifetime situation. At least I hope it is.
Compounding wealth with investments
Indeed, if we leave cash to erode in a savings account paying pitiful rates of interest, the spending power of the money will likely fall behind the rate of general inflation. So, there’s a strong incentive to do something else with the money.
And, for me, the solution is to invest in shares for the long term. And I’m doing that because behind every stock is a business capable of generating value. Indeed, a business can increase its profits, expand its operations, add to its assets, increase its selling prices to counter inflation, and pay me a shareholder dividend. In other words, unlike cash savings, I think shares can be a good store of value capable of paying me an inflation-busting return over time.
If I plough all my dividends and other gains from shares back in, I’ll be compounding my returns. And the process of compounding is key to building wealth. Indeed, over time, compounded returns can grow exponentially. And I believe if I choose my investments carefully, it’s possible for me to become rich by owning shares.
