It feels counterintuitive, but the best time to buy FTSE 100 shares is when stock markets are crashing. That way you can pick up your favourite companies at bargain prices, with the aim of holding them for the long term.
The dramatic FTSE 100 crash in March was just such an opportunity. Investors who missed the chance to buy shares when the index fell below 5,000 may be kicking themselves today. When stock markets are crashing, you can’t afford to hang around.
The index rallied almost as quickly as it fell. At the start of this week, the FTSE 100 was trading at around 6,500, a climb of around 30%.
This pattern is seen again and again during periods of extreme share price volatility. When stock markets are crashing, they can plummet at immense speed. They can also bounce back just as quickly, and tend to move at the fastest pace in the early stages of a recovery.
Once investors stop panicking, they start hunting around for opportunities. The rush for bargains can rapidly gain momentum, as we saw in April and May. Those who screwed up the courage to buy at the bottom of the market did best of all.
Stock markets are crashing, buy shares
At the start of this week, there was a broad consensus that the recovery overreached itself. There is massive economic and political uncertainty ahead. As we saw today, UK GDP has fallen by 20.4%, the fastest drop in history. When current furlough support comes to an end in October, millions could find themselves without work or incomes.
The shock could be severe. I think that largely explains this week’s pullback, and I also think it is a good thing. When the economy is crashing, it’s not sustainable for share prices to be flying in the opposite direction.
After a bumpy week the FTSE 100 is up today, but I wouldn’t be surprised to see it dip below 6,000 shortly. It could fall lower still, as the uncertainty drags on. History has seen plenty of bear market rallies.
There are FTSE 100 bargains out there
Long-term investors should not be afraid. When stock markets are crashing, opportunities abound. Right now, I would focus on companies with strong balance sheets, healthy cash generation, minimal debt, and a strong protective moat against rivals. Companies with the strength to continue paying dividends are of particular interest as so many FTSE 100 firms suspend theirs.
If you did not take advantage of the March crash, another FTSE 100 pullback could work in your favour. It is giving you a second opportunity to pick up top stocks at reduced prices. As always, aim to hold for the long term, ideally forever.
Stock markets are crashing one day, rising the next. You need to look beyond these dramatic short-term swings, and fix your eyes on some future date when you will retire. If you buy shares today when prices are down, you have a far better chance of building long-term wealth for tomorrow.
