Stock market crash 2020: a once-in-a-lifetime chance to get rich?

The 2020 stock market crash highlighted the extreme volatility that can be present in the stock market. Indexes such as the FTSE 100 Index (FTSE: UKX) and S&P 500 Index (SP: .INX) declined rapidly in a short space of time. While some stocks have recovered, many others continue to be viewed negatively by investors as a result of an uncertain economic outlook.

As such, there could be buying opportunities that rarely present themselves. Through taking a long-term view and buying a diverse range of undervalued stocks today, you could improve your financial prospects.

Stock market crash 2020: an unusual event

The 2020 stock market crash was a very rare event. It prompted a bear market, with many indexes across the world slumping by over 20% in a matter of weeks. The last time such a large fall was experienced across global equity markets was during the global financial crisis in 2008/09. Prior to that, the dot com crash and an uncertain geopolitical outlook in the early 2000s also prompted severe declines for global stock markets.

Therefore, in the past 20 years, there have been only a small number of instances where stock prices have declined severely en masse. This means that buying opportunities such as those still available today are relatively rare. Investors who can go against the consensus views of their peers and buy high-quality shares at cheap prices may generate impressive returns in the long run.

Today’s buying opportunities

While some shares have recovered following the stock market crash, many others continue to trade at low prices. Investor sentiment towards sectors that face an uncertain near-term outlook is especially weak, with banks, retailers and consumer goods companies trading at low prices. In some cases, they are trading significantly below their historic averages. This suggests that they offer a wide margin of safety, and could deliver high capital returns in the long run.

Of course, the economic outlook is likely to remain uncertain for many months. Therefore, it is sensible to diversify across a range of sectors. With consumer sentiment apparently changing rapidly in response to lockdown measures put in place across many major economies, having exposure to a range of industries within your portfolio could be a profitable move.

A long-term perspective

While there may yet be another stock market crash, the reality is that such buying opportunities are few and far between. Investors who use them to their advantage through purchasing undervalued stocks can generate market-beating returns. Over time, they can make a real difference to your portfolio’s performance and your financial outlook.

Therefore, while buying shares may seem like a risky move today, it could be a logical step for any long-term investor to take. The stock market’s track record of recovery suggests that many undervalued stocks will deliver recoveries as the economic outlook improves.

More reading

• Don’t worry about low interest rates, just buy these ASX dividend shares
• Got $1,000? You should buy one of these 8 ASX shares
• Here’s my top ASX share to buy and hold through the 2020s
• How to turn $20,000 into $350,000 in 10 years with ASX shares
• These were the best performing ASX 200 shares last week

Motley Fool contributor Peter Stephens 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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