While some investors will be panicking at today’s FTSE crash as they see the value of their pensions and investments fall, others (like me) will be looking on the bright side. Instead of a threat, I see this as an opportunity. One I’m nicely placed to take advantage of without having to take any direct action at all.
There are two basic ways people invest in stocks and shares. Some investors pay in cash lump sums whenever they have money to spare or spot an unmissable opportunity. Others set up a direct debit and pay in a regular sum every month. Wise investors do both.
Two ways to cash in the today’s FTSE crash
There are pros and cons to both strategies. One big attraction of investing an ad hoc lump sum is that investors can take advantage of a FTSE fall like today’s to snap up their favourite stocks at reduced prices. There are plenty for me to choose from right now, especially if I’m willing to go bargain hunting in stricken sectors such as energy, airlines and entertainment.
These all fell sharply yesterday, amid fears over the impact of the latest Covid variant on travel, economic activity and people’s freedom to go out and have fun.
Investing regular amounts also has its attractions. First, once I set up a direct debit, the money buys shares or funds automatically, every month, and soon I don’t even notice it leaving my bank account. My money will nonetheless be working hard, quietly, building my long-term wealth for retirement.
Regular investing can also pay off in a FTSE crash, as that regular monthly payment will pick up more stock or fund units when markets have fallen.
Some regular investors like me actively welcome a crash, because we know we’ll be getting more for our money that month. Even a protracted bear market can be beneficial, as a direct debit repeatedly buys shares at reduced prices. As will all reinvested dividends.
The regular way to get rich
Regular investing also avoids the risk of putting a big single lump sum into the FTSE, only for it to crash next day. The major downside is that investors only commit relatively limited sums every month. When investing large lump sums, more money goes to work right away.
Like many people, I do a bit of both. I invest a regular monthly sum into a spread of global investment funds. I also buy FTSE stocks and funds inside my pension or Stocks and Shares ISA, when I see a stock worth buying or have a bit of cash to hand. Happily, both strategies allow me to take advantage of a FTSE crash.
The difference is that as a regular investor, I don’t even need to think about it as it just happens. Every month. Until one day I check out my investments and with luck, get a pleasant surprise. Not that this is guaranteed. Share prices and dividends can fall as well as rise so I’m not completely hands-off as I want to ensure the companies I’m investing in continue to deliver.
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Harvey Jones 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.
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