Surging inflation has battered global markets this year. And despite pharmaceutical stocks tending to fare well in times like this, GSK (LSE: GSK) shares are down nearly 12% in 2022.

This fall has caught my eye. I think it presents a great opportunity to snag some cheap shares as we head into 2023 and to hold them for the long term. Here’s why.

GSK share price history

Before we get into it, let’s take a look at how the GSK share price has performed in recent times.

Inflation has peaked above 10% in both the UK and the US this year, meaning markets have taken a beating, including GSK. At this time last year, a share in the business would have set me back £16.24. Today, at the time of writing, it would cost me just £14.32.

Across the past five years, the stock has returned over 8% to shareholders, a significantly better return than that of the FTSE 100.

Is it time to buy?

So, is now the time to buy GSK? I believe so.

Its main attraction for me is the strong results the business has posted recently. For example, in its Q3 update, it announced sales growth of 9% to £7.8bn, fuelled by record sales of its shingles vaccine, Shingrix. On top of this, GSK also managed to reduce its net debt by £3.7bn in Q3 year on year to just over £18bn, while free cash flow came in at £723m.

With the macroeconomic headwinds that we’ve been facing, these are encouraging signs. As a result, GSK raised its full-year forecasts, with sales growth now expected to sit between 8% and 10%.

The business has also made great strides in streamlining its operations, predominantly through the Haleon demerger. The move will allow GSK to focus on developing vaccines and medicines. And with over 60 currently in development, this could boost profits in times ahead.

What also draws me to the stock is its dividend yield. At 7%, this isn’t inflation-beating. However, it does sit comfortably above the average of its FTSE 100 peers. With inflation predicted to persist in 2023, the cash generated from these dividends will come in handy.

The price-to-earnings ratio of around four also signals to me that the stock may be currently undervalued.

GSK concerns

The largest concern I have with GSK is rising inflation. As it continues to persist into 2023, this could see costs spike.

There’s also the persistent issue of potential legal action. The firm recently had a legal ruling thrown out after it was suggested that its Zantac heartburn treatment causes cancer. And while the outcome of this ruling was positive (at least for now), it highlights the potential risks and complications that come with investing in businesses such as GSK.

The verdict

Should I have some spare cash, I’ll be looking to pick up GSK shares as we head into the New Year. The business has posted some strong results during a tough year. And with its meaty dividend yield and low valuation, I like the look of the stock.

The post Why I’d buy GSK shares in 2023 appeared first on The Motley Fool UK.

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• GSK’s share price is under £22, but with a ‘fair value’ much higher, is it time for me to buy more right now? 

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Gsk Plc and Haleon Plc. 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.

Untold amounts have been wiped off global markets this year. And while the FTSE 100 and S&P 500 have made small recoveries in the last month or so, investors will still be anxiously waiting to see what else 2022 can throw their way. With these falls, I’m on the lookout for beatdown stocks that I can buy for a bargain price. So Rolls-Royce (LSE:RR) shares spring to mind.

The business has been dealt a bad hand as far as the last few years are concerned. Hopping from the Covid-19 pandemic to the tragic war in Ukraine has seen the firm’s operations seriously hindered (and at times halted).

Rolls-Royce is down over 30% this year. So, should I be snapping up some shares?

Latest results

A good place to start is by looking at the half-year results released last week.

The update revealed that compared to the same period last year, Rolls-Royce managed to increase revenues slightly to £5.3bn.

Despite this, investors still dumped the stock as underlying operating profits declined from £307m last year to just £125m this half. The business pinned this drop-off on the issues it currently faces from rising inflation and the Ukraine conflict, citing that “the external environment remains challenging.”

One positive was the minimal increase seen in net debt. Compared to H1 2021, it had risen only £20m to £5.16bn, which is encouraging.

However, even though the small jump does provide some optimism, the debt itself remains a large issue. A debt pile of this magnitude could hinder the business going forward. And with interest rates on the rise, this is a further stumbling block.

Rolls-Royce has taken strides to eradicate some of this debt, such as the sale of ITP Aero to an American private equity firm. Yet for me, this is still a deterrent.

Is it time to buy?

So, is it time to snap up some shares?

Its latest update reveals the harsh reality of the current economic conditions. And the firm is also feeling this in other ways.

For example, the company is currently locked in a pay dispute with labour union Unite. Its previous offer of a £2,000 cash lump sum was rejected. And now members are balloting on a new offer of a 6.5% base pay increase. Taking place from 3 August to 17 August, the outcome of this could have implications for the Rolls-Royce share price.

But while the outlook is murky for the business, a reviving aviation sector could save the firm. Despite the issues currently being seen at airports, the travel sector has made some decent strides to pre-pandemic levels. Investors will be hoping this can continue.

With this said, I won’t be adding Rolls-Royce to my portfolio right now. Its situation is a representation of the tough times we face. And with supply chain issues potentially worsening due to poor China-Taiwan relations, this could see the stock suffer further. I’ll be keeping Rolls-Royce on my watchlist for now.

The post Is now the time to be snapping up Rolls-Royce shares? appeared first on The Motley Fool UK.

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• Down 18% in weeks, is now the time to snap up Rolls-Royce shares?
• How have Rolls-Royce shares returned 1,017% in 5 years?

Charlie Keough has no position in any of the shares 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.

Investors in Rolls-Royce (LSE: RR) will not be happy looking at its performance this year. The stock has tumbled 33% as ongoing market concerns have crushed sentiment. The Rolls-Royce share price has also been held back by the crippling effects the pandemic has had on the civil aviation sector.

Yet the stock is showing signs that it can make a recovery as we head into the second half of the year and beyond. But will this be enough for its share price to take off? Let’s explore.

Increased defence spending

Rolls-Royce is set to benefit from the increased focus placed on defence spending in recent times. Its defence division is its second-largest generator of revenue. And with a renewed focus, fuelled by the conflict in Ukraine, the business has already noted a backlog of orders. It generated around 30% (£3.3bn) of its revenues from its defence segment last year. With demand looking set to continue to rise, this could provide Rolls-Royce with a boost.

The firm has also made large strides to become more streamlined. It trimmed its costs by starting a restructuring programme back in 2020. And this would have played a part in the £124m profit the group reported last year. On top of this, it’s also generating free cash flows again. These are all positive signs.

Rolls-Royce debt

What may hinder Rolls-Royce’s recovery is its debt. At the end of 2021, the firm had a net debt of £5.1bn. The recent £1.5bn sale of subsidiary ITP Aero to private equity firm Bain Capital will go some way towards alleviating the pressure. However, as interest rates continue to rise, this debt may become harding to service, bumping up costs for the business. This could have a damaging impact on the Rolls-Royce share price.

The company is also embroiled in a pay dispute with employees amid the cost-of-living crisis. Rolls-Royce recently offered a £2,000 cash lump sum to around 70% of its UK workforce, at a cost of around £45m. But this was rejected by Unite, the union representing workers, which is holding out for an offer more in line with the rate of inflation. Should Rolls-Royce have to increase wages further, this would squeeze the company’s profit margins.

A further issue for me is its high price-to-earnings (P/E) ratio. It currently trades on a P/E of 58. I think this shows the share price is not great value.

Can it recover?

So, can the Rolls-Royce share price recover in 2022 and beyond?

Well, I’m not sure. Increased recognition of defence spending should provide the firm with a boost. However, I think the stock’s price could be dragged down by the headwinds it faces in the near term regarding its pay dispute. Its large debt is also a concern for me. While I like Rolls-Royce, I’m holding out to see if its share price slides further before opening a position in my portfolio.

The post Will the Rolls-Royce share price recover in 2022? appeared first on The Motley Fool UK.

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• £10k invested in the FTSE 100 at the start of the decade is now worth…
• No pension at 40? Don’t panic! A SIPP could be the answer
• Down 18% in weeks, is now the time to snap up Rolls-Royce shares?
• How have Rolls-Royce shares returned 1,017% in 5 years?

Charlie Keough has no position in any of the shares 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.

Rolls-Royce (LSE: RR) has had a tough first half of the year. With the stock down 36% year-to-date, this downward trajectory has been a familiar story for the Rolls-Royce share price in recent times. Five years ago, the shares were trading for over 300p. Yet, at the time of writing, the stock is currently sitting just above the 80p mark.

So, where will the Rolls-Royce share price go from here? And should I be buying the stock today?

Bull case

There are a variety of reasons that lead me to believe the Rolls-Royce share price could surge in the future. To start, the firm has taken great strides from the struggles it experienced due to the pandemic. For example, the FTSE 100 business turned a £124m profit last year. Given the £3bn loss it experienced in 2021, this is impressive. Should this recovery continue, I’d expect to see a hike in the Rolls-Royce share price.

It has also benefited from an increased emphasis on defence spending, as the firm has noted a backlog of orders. While this is unfortunately largely due to the war in Ukraine, spending has increased more broadly across Europe in recent times. Should these high levels of demand be seen in the future, this could contribute to higher profits for Rolls-Royce.

Bear case

However, there are also some alarming factors surrounding the firm.

One of these is the debt it has. This currently sits at around £5bn. And while this is a major issue in itself, as interest rates continue to increase this will only magnify the problem. This is because rising rates will make the debt more difficult to pay off. Going forward, this will provide problems for Rolls-Royce.

On top of this, the company is currently engaged in a wage dispute with its workers over the cost-of-living crisis. Unite, the labour union representing a large share of Rolls-Royce employees, rejected a £2,000 cash lump sum offered earlier this week. A Unite spokesperson said in response that “the revised offer still falls a long way short of the cost-of-living crisis claim submitted by our members and their expectations”. Should this dispute fail to be resolved soon, this will have negative implications for Rolls-Royce.

What also puts me off the stock is its high price-to-earnings (P/E) ratio. With a P/E of 54, I think this shows Rolls-Royce is overvalued. However, this figure could fall in the future should the firm continue to generate better profits.

What I’m doing

There’s no denying that Rolls-Royce has made strides since the pandemic. However, there are too many issues with the firm for me to deem it a buy for my portfolio. The large debt it has is worrying. And the pay dispute it’s currently involved in creates further pressure for the firm. Add this to its high valuation, and I see too many issues with the firm to add the shares to my portfolio. Despite the cheap Rolls-Royce share price, I won’t be buying the stock today.

The post The Rolls-Royce share price is below 85p. Here’s what I’m doing! appeared first on The Motley Fool UK.

More reading

• Up 1,000% in 5 years, but the UK government could send Rolls-Royce shares even higher
• £10k invested in the FTSE 100 at the start of the decade is now worth…
• No pension at 40? Don’t panic! A SIPP could be the answer
• Down 18% in weeks, is now the time to snap up Rolls-Royce shares?
• How have Rolls-Royce shares returned 1,017% in 5 years?

Charlie Keough has no position in any of the shares 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.

2022 has been a tough year for stock markets. Rampant inflation has led central banks to hike interest rates, and as a consequence stocks are taking a hit. For context, the FTSE 100 and S&P 500 are down 6% and 23% year to date, respectively.

However, there are some stocks that have weathered the storm of this year’s market volatility. BT (LSE: BT-A) stock is up 4% this year, rising 9% in the past six months. Granted, the shares are down 10% over the past 12 months, but with the recent positive move, is this stock a no-brainer buy?

A great buy

One of the primary reasons I like the look of BT is due to its ‘defensive’ nature. The company has a huge amount of pre-existing infrastructure, meaning it has little operating cost exposure. In addition to this, the firm’s strong customer base gives it — up to a point — good pricing power, meaning it can move prices in line with inflation. Both of these factors should help BT stay afloat in today’s volatile markets.

The Q4 2022 results released in May also contained some good signs. The firm delivered on its main strategic priorities, with its 5G network now covering around 50% of the UK. In addition to this, its ultrafast Openreach broadband was rolled out to an additional 3m homes, now totaling 7.2m across the UK. Finally, FY2023 free cash flow predictions were adjusted from £1.3bn to £1.5bn, showing the strong cash generation of the telecoms giant. This should ensure a stable dividend for the foreseeable future.

Looking at BT’s valuation fills me with even more confidence. The shares currently trade on a forward price to earnings (P/E) ratio of 9.1. This is below the P/E ‘value’ marker of 10. In addition to this, it looks much cheaper than competitor Vodafone that trades on a forward P/E ratio of 14.8. BT also offers a healthy dividend yield of 4.3%, which could top up my portfolio with extra cash.

Not plain sailing just yet

One risk I see for BT in the near future is the cost of living crisis. Yes, it has the luxury of moving its prices in line with inflation, but customers can only be pushed so far. They do have other options and if prices rise too much, they could move. It operates with wafer-thin margins so any substantial loss of customers could pose a big threat.

In addition to this, BT’s balance sheet is stacked with over £20bn in debt. As interest rates creep up, this figure could slowly rise, putting pressure on the business. However, BT’s cash positive cash flow projections signify that this debt isn’t an immediate risk.

A no-brainer buy?

I have a soft spot for BT stock in the current market, however, I wouldn’t go as far as calling it a no-brainer just yet. I think the stock could perform well over the next few years, and also provide me with a good inflation hedge. However, I think wider market volatility could dent the share price in the near future. As such, I’m going to wait until BT’s July results before making my move.   

The post Is BT stock a no-brainer buy at 180p? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

While the past five years may have been dire for its shareholders with the shares down 40% since then, BT has made a solid recovery from its 2020 Covid-19 lows. So, in the tough market conditions we’re currently experiencing, would BT be a strong addition to my portfolio? Let’s explore.

Positive outlook

What most attracts me to BT is the positive outlook it provided in its recent full-year results. CEO Philip Jansen highlighted how Openreach continues to grow. It’s now reached 7.2 million premises with 1.8 million connections. And to add to this, BT’s 5G network now covers 50% of the UK population. As a potential investor, these look like solid foundations to build upon for the firm.

Another reason I’m tempted to buy BT shares is the substantial dividends the stock provides. With a dividend yield of just over 4%, this sits above the FTSE 100 average. What makes this more attractive is rising inflation. While cash is depreciating, the strong dividends offered something of a hedge against rising rates.

BT has also announced it has finalised a joint venture with Warner Bros Discovery for its sports division. With this move, the business is optimistic it can create a subscription-based powerhouse. And should this be the case, the increased revenues would provide a boost for BT.

BT concerns

However, there are a few concerns I have. Firstly, it has invested over £5bn in capital expenditure in recent times in an attempt to upgrade its current network. And this, along with the large amount of debt the firm already has, could be an issue. With interest rates also on the rise, this could spell further problems for the business. However, while this investment may provide short-term headaches, in the long run, this cash injection should help BT thrive in the future.

As well as this, BT is also currently involved in a pay dispute with the Communications and Workers Union (CWU). This represents around 40% of the workforce. And CWU members have rejected a £1,500 flat rate rise, equating to between a 3% and 8% increase, with workers pushing for a figure closer to 10%. If no agreement is reached, there are plans for a strike action ballot in mid-June. A negative outcome of this saga would no doubt hurt the BT share price.

Why I’d buy

So, although the shares do carry risks, I think the stock could be a great addition to my portfolio. Its strong dividends offer a hedge against inflation. And the positive comments Jansen provided in its latest results make me optimistic. Add this to the potential revenue raised from its joint venture, and I would most certainly be willing to buy BT shares today.

The post Should I be buying BT shares today? appeared first on The Motley Fool UK.

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Charlie Keough has no position in any of the shares 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.

Support can’t last

Chancellor Rishi Sunak has been praised by many for the swift response to the damage wrought by the pandemic by introducing the furlough scheme. Mortgage ‘holidays’ have also provided people with some breathing space to reassess their finances.

Clearly however, there’s a limit on how long this arrangement can continue. As such, unemployment levels look set to get grow significantly in the rest of 2020 as businesses learn the full costs of the pandemic on trading. 

It seems realistic rather than overly negative to say that some parts of the economy will take a lot longer to recover than others. Some may struggle to recover at all. 

Second wave?

The gradual lifting of lockdown restrictions has been welcomed by some, criticised by others.

Regardless of where you stand, the current lack of vaccine means there’s is at least a chance of countries being hit with a second wave of the virus . We just don’t know how big that probability is.

Even if a big second wave isn’t forthcoming, I still have difficulty believing that the economy will spring back to life fast. Yes, there might be an initial surge in activity as people ‘let off steam’, but a looming recession and social distancing restrictions make it likely that consumer spending is unlikely to go back to normal.  The psychological wounds inflicted by the coronavirus won’t heal overnight. 

Murky earnings outlook

Stocks may have recovered from March’s market crash but many companies are still unable/unwilling to provide any kind of guidance on earnings for the rest of 2020.

This makes valuing a business somewhat tricky. We know what shares are trading at, but we don’t know how fair these prices are. This, of course, doesn’t stop analysts from speculating. 

The question to ask is whether estimates are likely to be hit. If current projections prove too optimistic (even after taking into account the impact of the virus), expect share prices to be walloped. 

Market crash 2.0

If all this sounds very negative, don’t despair! There are things you can do now to prepare for the possibility that markets might fall again.  

Chief among these is checking that you’re still happy with anything you already own. Holding companies with healthy balance sheets is more important than ever, in my opinion, and anything I own with debt is receiving extra scrutiny these days.

Second, I’ve built up a decent cash position to capitalise on any big drops in coveted quality stocks. One of the worst things in investing is not that markets fall, it’s having no dry powder to take advantage when they do!

That said, holding too much cash for too long should still be avoided. This is why — third —  I’m continuing to buy stocks where I think some of this risk is already priced-in or where the long-term outlook for a company or sector remains bright. 

Finally, I’m limiting my news consumption. Keeping some distance, at least during trading hours, should help avoid any emotional buying or selling.

The post Stock market crash round 2 may be coming. Here’s what I’m doing now! appeared first on The Motley Fool UK.

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• Might it make sense to ‘go away’ from the stock market in May?
• Up 1,000% in 5 years, but the UK government could send Rolls-Royce shares even higher

Paul Summers has no position in any of the shares 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.

Deal with debt

Assuming essentials are taken care of, tackling any debt should now take priority over everything else. This starts with anything that charges a high rate of interest on the money you’ve borrowed.

If you’re really struggling, it makes sense to take advantage of ‘repayment holidays’ offered by banks. Alternatively, get some breathing space by moving your credit card balance to another provider that charges zero interest for a period.

Now look at your monthly outgoings. Will you really need that gym membership once restrictions are lifted? Did you watch every boxset on every streaming service, or can some subscriptions go? 

The point is not to make life unbearable and to retain the things that truly give value. 

Cultivate a second income

Many companies aren’t making a penny of revenue during the lockdown and may struggle to recover earnings once things ‘get back to normal’. This has serious implications for their employees.

Although the government has stepped in to provide some protection, the furlough scheme is still a temporary measure. Since we know not every job will be saved, devising a second source of income now might make things more bearable.

The gig economy isn’t perfect. Nevertheless, it can still provide a welcome income boost to those who’ve time to spare. Most of us have a skill or knowledge that we could put to good use, perhaps as a tutor. Why not sell unwanted possessions, or other items, on eBay for extra cash?

Get invested

But there’s another way to generate a second income: buying shares. The idea that a recession could also be seen as an opportunity sounds fanciful. However, I think this is exactly how long-term share investors should regard what we’re about to face.

Sure, markets don’t fare well in recessionary times (just call up a chart of the FTSE 100 from 2007 to 2009 for evidence of this). And this coronavirus-influenced recession will also feel different from those that preceded it. Never before have we been in a position where the earnings outlook for so many companies was murky. The recession may be mercifully short, but it could be very deep. 

That said, we’re an optimistic bunch here at Fool UK. History shows that markets always bounce back, regardless of the catalyst for an economic downturn. The old adage that “this too shall pass” has never felt more relevant.

So, unless the world as we know it is ending, putting spare cash to work in shares over the next few months could actually see you emerge significantly better off post-recession. 

As always, any purchases should be made with an awareness of how long you plan to hold and whether a particular investment is within your risk tolerance.

Those with little interest in the markets should probably gravitate to having a collection of low-cost funds they add to in regular instalments.

And while there’s potential for better returns from bargain shares, stock pickers should be even pickier than usual, in my opinion. Only high-quality companies with relatively sound finances should make the cut. 

The post How to prepare for a recession appeared first on The Motley Fool UK.

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• As the Lloyds share price falls while profits rise, is it time to dump?
• Might it make sense to ‘go away’ from the stock market in May?
• Up 1,000% in 5 years, but the UK government could send Rolls-Royce shares even higher

Paul Summers has no position in any of the shares 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.

Although your ability to take the following steps will depend on just how much money you’ve been handed, I think there are a few actions that most of us should consider.

1. Pay off debts

Rather than squander the cash on shiny new things, I’d start by addressing any lingering debts. These could be in the form of a personal loan or anything on a credit card.

The latter should definitely be considered a priority since rates of interest charged by card issuers are usually high (an APR of around 20% is the norm). This means that those only making the minimum payments each month could be paying back a huge amount of money over the long term, even if what they originally purchased wasn’t all that expensive.

Tackling your debts first might sound dull but it’s good for both your financial and personal health. 

2. Pay off your mortgage

Having cut the high-interest debt, your next option might be to wipe out your mortgage (assuming you have one). Whether this is a good idea or not will be based on your circumstances and for how long you think interest rates are likely to remain at historic lows.

Another thing worth considering is whether your lender will charge for paying off your mortgage entirely. In such a situation, it may be best to overpay a little every month and reduce the amount of interest you’re charged over the term instead.

If in doubt, consult a financial adviser. 

3. Save a little

Here at the Fool, we think people tend to focus too much on saving (if they save at all) and too little on actually making their money work for them. The former might help you sleep at night but with inflation gradually eroding the value of your cash the longer it sits in your account, that’s a heavy price to pay.  

There is, however, a caveat to this. Having a little money to fall back on in times of trouble is perfectly sensible and should help cushion the blow from, say, a temporary period of unemployment. Having opened the savings account with the best interest rate you can find, the only question you need to answer is how much is enough.

4. Invest a lot

Here’s where things get interesting. Yes, it’s time to hit the stock market, especially if you’ve got no need for the money for at least five years.

The market may have a reputation for being a scary place but don’t let that put you off. One relatively low-risk option is to invest the majority of your lump sum into cheap exchange-traded funds that simply track the market return rather than trying to beat it. Many also pay dividends that can then be re-invested (recommended) or spent. 

Importantly, try to hold as many investments as you can in a Stocks and Shares ISA or a Self-Invested Personal Pension. When combined, these accounts allow you to deposit up to £60,000 in a single tax year. And if you’ve received anything over this amount, think about transferring some of your new-found wealth into similar accounts for your partner, children, or other family members.

The post Your 4-step plan for what to do with an inheritance appeared first on The Motley Fool UK.

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• 3 FTSE 100 shares I think look undervalued heading into May
• As the Lloyds share price falls while profits rise, is it time to dump?
• Might it make sense to ‘go away’ from the stock market in May?
• Up 1,000% in 5 years, but the UK government could send Rolls-Royce shares even higher

Paul Summers has no position in any of the shares 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.

1. “It’s only when the tide turns out that you discover who’s been swimming naked”

Since the financial crisis, we’ve had years of historically low rates of interest. Only in recent times has there been any effort to raise them. And even then, the desire to do so hasn’t exactly been full-on.

Indeed, the US Federal Reserve announced in January it would be pressing the pause button on rate rises for the foreseeable future. That gives some indication of just how nervous many central bankers still are over the health of the global economy.

Many have benefited from these low rates, of course. Those with mortgages have seen their monthly payments remain stubbornly low. Cheap personal loans have also been available for those wanting to make a sizeable purchase, such as a new car.

Companies determined to grow at speed have also enjoyed this period, taking advantage of cheap debt. The problem is this has also allowed poorly managed, sub-standard businesses that would otherwise have collapsed to survive.

The one thing we can know for sure is that nothing lasts forever. A rising tide lifts all boats but only for so long. That’s why the vast majority of stocks I own have net cash on the balance sheet (or no debt at all) and proven business models. Are there any ‘zombies’ lurking in your portfolio?

2. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

Following on from the first bit of wisdom, the second is worth remembering when that tide does eventually go out. Buffett preaches the obvious: buying when things are on sale rather than when they’re expensive — exactly what we tend to do when things we really want become available at bargain prices in the shops.

As many experienced investors know (and young investors will surely discover), doing the obvious sounds easy when markets and stocks are setting new highs. Buying when there’s ‘blood on the streets’ certainly is far more difficult but that’s exactly why it can work so well.

In preparation for such falls (and they will come), consider drawing up a list of stocks you’d buy as everyone else runs for the exits.

3. “Risk comes from not knowing what you’re doing”

So piling into stocks when their value plummets is easier said than done. But even if you are able to keep your head while everyone else is losing theirs, you need to remember your own tolerance for risk. In other words, don’t just buy anything.

A general market sell-off isn’t a signal to suddenly get interested in infinitely-more-risky small-cap oil and gas or biotech stocks over those in the FTSE 350 if you don’t already truly understand these sectors and possess the ability to separate the wheat from the chaff. Operating within your own circle of competence is essential, even when everything looks cheap. 

Also bear in mind every investor’s risk tolerance changes with time and that economic downturns can persist for longer than many of us would like.

The post NOW could be the perfect time to remember these wise words from Warren Buffett appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares 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.