This year’s stock market crash and problems in the UK have unsettled investors. It might pay off to get greedy instead.
Unless you urgently need the money, now is probably not the time to panic and dump your investments. Investors who do so could sell at the worst possible time.
Bold investors should grit their teeth and buy more stocks and bonds instead.
This strategy won’t work for everyone, but investing after a market crash can be the perfect long-term strategy.
It’s like shopping at a sale. Suddenly, stocks and bonds are trading at discount prices, and there are bargains everywhere.
It makes a lot more sense than stepping in when markets are flying and everything is overvalued as investors bid higher and higher prices.
Global stock markets have been devastated in this troubled year due to post-Covid supply chain shortages, the war in Ukraine and skyrocketing energy prices. The political problems in Britain did not help.
But what’s really scaring investors is that central bankers, led by the all-powerful Federal Reserve, are desperate to raise interest rates to curb inflation.
Higher borrowing costs will take life out of the economy and potentially plunge us all into recession.
You have to be crazy to part with your money at a time like this, don’t you? The answer for most people is, of course, yes.
It would be a stupid thing to do.
Buying stocks today is risky. The markets could continue to crash and you will lose even more money. Most people can’t afford it anyway as the cost of living is skyrocketing.
They have more immediate uses for their money, such as B. paying food and gas bills and a roof over your head.
But not everyone is in this position.
Millions of workers want to build wealth for their retirement by investing in personal pensions or stocks and stocks ISAs.
Many will have cash left over today, but are understandably anxious.
READ MORE: UK stocks brave global stock market crash – ‘FTSE 100 strikes back’
US investment guru Warren Buffett famously said that smart investors should be “fearful when others are greedy and greedy when others are fearful”.
Investors are fearful today, so now could be the perfect time to get greedy. But only if you’re willing to be patient.
Nobody should invest in stocks unless they plan on keeping their money there for at least five years, ideally much longer.
Over such a long period, markets have plenty of time to recover from short-term shocks like the one we are facing.
Also, the dividends that companies pay to shareholders have more time to accumulate and grow.
If you take the long-term perspective, it doesn’t matter if the markets fall again after your investment. History shows that stock markets always recover over time.
Alternatively, you can spread your risk by allowing feed money to flow into your pension or ISA and benefit from future dips.
Markets are forward looking and typically recover BEFORE the economy emerges from recession, not after.
If you wait for today’s crisis to pass, the opportunity may have passed.
However, it’s not for everyone. Assess your risk tolerance. Make sure you save money to cover important expenses. Be more careful as you get older as time is no longer on your side.
Then decide if it’s time for you to be fearful or greedy.