As most of us would be aware of by now, the S&P/ASX 200 Index (INDEXASX: XJO) had a fairly nasty market crash this year. Between 20 February and 23 March, the ASX 200 fell by more than 36%. It was the worst ASX crash since the global financial crisis and the fastest fall for the ASX 200 in history.
But since then, ASX 200 shares have rebounded strongly. Since 23 March, the ASX 200 has risen more than 30% and is now sitting 12.5% below where it started the year.
Now, before the March crash, there were a lot of investors (myself included) who thought ASX shares may have run away somewhat and entered ‘overvalued’ territory. The obvious solution to this problem was to stack cash in anticipation of lower share prices in the future.
But the March crash was so rapid that it took many investors (again, myself included) off guard. I managed to buy some ASX shares for some great prices, but in hindsight, I wasn’t able to take advantage of the situation as much as I would have liked to.
So that leads me to the question: should we always wait for a crash to buy a decent amount of shares? Or is this a fool’s game (and not the good kind of Fool).
Should we wait for an ASX 200 market crash?
In theory, it’s optimal to buy shares at the cheapest prices you can. In practice, none of us knows when this will occur. If you missed the bottom of the market during the crash in 2008–09, you would have had to wait until March 2020 for another real crash to take advantage of. That’s 11 long years to wait and a lot of gains to miss out on.
So what is an investor to do? Well, you can always have a foot in both camps; black and blue. I personally like to keep between 10-30% of my portfolio in cash at all times. If I get to the 30% threshold, I’ll usually start dollar-cost averaging into ASX shares until the 30% level is reached again or there is a significant buying opportunity (like we saw in March). If I don’t get to 30% I’ll just keep piling up cash and dividends until I do.
Now, everyone will have a different way of addressing this problem. You may like my way or find your own way better for your particular temperament. But, as long as you have a strategy that won’t leave you wanting something you don’t have if, and when, the markets do crash, you’ll be just fine.
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More reading
- ASX 200 finishes higher, Afterpay hits new record
- The latest ASX 200 stocks to be slapped with a broker downgrade
- 3 ASX shares I’d buy if the market crashes again
- Is the share market facing another February 2020 moment?
- Can the Newcrest share price crest to new highs?
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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