The Motley Fool

Why long-term investors shouldn’t fear a second market crash

Image source: Getty Images

A second stock market crash could be ahead. Risks, such as political uncertainty in Europe and an uncertain economic outlook, may mean investor sentiment weakens to some extent over the coming months.

This may cause paper losses for many investors. However, on a long-term view, it could prove to be a buying opportunity. Cheaper stock prices, plus the recovery prospects for equity markets, may mean that buying shares in a market downturn could prove to be a profitable move in the coming years.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Recovering from a stock market crash

The 2020 stock market crash wasn’t the first time indexes such as the FTSE 100 and S&P 500 had experienced a sudden downturn. In fact, their past performances have included many periods of sharp declines that were impossible to accurately predict prior to their occurrence.

Despite their previous declines, both indexes and the global stock market have always recovered to post new record highs in the aftermath of past bear markets. As such, investors who are able to look beyond short-term challenges and falling stock prices can access low valuations ahead of a likely stock market recovery.

How long it takes share prices to recover after a market crash is clearly a known unknown. However, past bear markets have taken from weeks to years to transition into sustained bull markets that produce new record highs. Therefore, taking a long-term view means there’s a higher chance of ultimately benefitting from a likely return to positive economic growth and a rising stock market.

Managing a portfolio in a downturn

Clearly, managing a portfolio during a stock market crash isn’t an easy task. Investor sentiment can quickly change towards even the most stable of businesses.

However, assessing the financial strength of a company could be a logical starting point. Companies with low debt levels and solid balance sheets may be better placed to overcome challenging operating conditions. In turn, this may increase their chances of benefitting from a long-term stock market recovery.

Similarly, spreading risk across multiple shares and sectors could be a sound move during a market crash. It may lessen an investor’s exposure to specific stocks or industries that may be harder hit by a market decline. This could reduce an investor’s dependency on a small number of businesses and industries for their returns. Over the long run, this may improve their capital return potential.

Reacting to market movements

As mentioned, it’s extremely difficult to foresee a market crash. Often, they come unannounced and take place over a relatively short time period. However, investors can control how they react to such events. By viewing them as a long-term buying opportunity, it may be possible to benefit from them through using lower stock prices to build a larger portfolio over the coming years as the stock market recovers.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.