5 reasons why I’m not worried about a stock market crash

Investing in shares may seem like a rollercoaster ride. Alice Guy shares five reasons why a stock market crash won’t tempt her to get off the ride just yet.

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.

Sixed group of millennial aged friends discuss investing

Image source: Getty Images

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.

Stock market predictions are a mug’s game. The truth is that no one really knows when to expect a stock market crash.

But there are lots of reasons to be cheerful if you’re an investor. Here are five reasons why, as a long-term investor, I’m not worried about a stock market crash.

[top_pitch]

1. The stock market will bounce back

It’s possible that a stock market crash is coming. Who knows? But history teaches us that the stock market bounces back from a crash.

The stock market goes through cycles of growth and decline. We tend to remember the crashes more because they are so dramatic. When the Covid-19 crisis started in March 2020, the UK stock market was in for a rough ride.

The FTSE 100 (the index of the biggest 100 companies in the UK) fell from 7,542 points at the end of December 2019 to 4,993 points on 23rd March 2020. But it has now bounced back to an almost pre-pandemic level of 7,027 points.

Because I’m investing for the long run, I have time to wait for the stock market to boom again.

2. A stock market crash is a buying opportunity

A stock market crash is often the best time to buy shares.

It’s always best to buy shares when the prices are low. The problem is that we don’t have a crystal ball, so we don’t know what prices will be in the future. We can never know if share prices will fall further or how long they will take to bounce back.

What is clear though, is that if you have spare cash, a stock market crash can be a buying opportunity. For example, if you’d spent £1,000 in a UK tracker fund on 23 March 2020, then it would now be worth £1,407. That’s a great return for your money!

3. I have an emergency fund

If you have enough saved in an emergency fund, then you won’t need to dip into your investments. This is great if there’s a stock market crash. 

Running out of cash might force some investors to sell shares when the price is low. That’s when you’d really lose out from a stock market crash.

[middle_pitch]

4. I’m investing for the long term

I don’t mind if there’s a stock market crash because it doesn’t affect me. I’m investing for my retirement 20 years from now. In the meantime, I know there will be many stock market cycles of boom and bust.

I may need a different investment strategy once I hit retirement, but for now, I’m happy to stay invested in the stock market.

5. Shares beat inflation in the long run

Stock market experts who’ve run the figures tell us that shares almost always outperform cash in the long run. 

According to the 2019 Barclays Equity Gilt Study, the stock market outperformed cash in 69% of two-year periods, and 91% of 10-year periods. The longer you have to invest, the more likely it is that stocks will outperform cash and beat inflation.

The FTSE 100 was created in January 1984, and it started at a value of 1,000 points. If you’d invested £1,000 in 1984, it would now be worth £7,027. That’s a growth of over 700%. During the same period, inflation rose by 329%.

That means that even with all the booms and busts the stock market has massively outstripped inflation.

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.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »