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.
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.
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.
The post 5 reasons why I’m not worried about a stock market crash appeared first on The Motley Fool UK.
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