The recent share market crash could present a buying opportunity for investors who can adopt a long-term approach to their portfolios. Of course, in the short run, many share prices could experience declines, should the global economic outlook deteriorate.
However, by focusing your capital on the highest-quality shares available and diversifying across a range of sectors, you could obtain a favourable risk and reward ratio while prices are low. This could increase your chances of making a million over the coming years.
A long-term approach
Investing during, or shortly after, a market crash can lead to disappointing results in the short run. For example, the economic impact of coronavirus may prove to be worse than investors are factoring. This may cause share prices to experience further falls that produce paper losses for investors.
As such, it’s important to adopt a long-term approach when investing during high share market volatility. The track record of equities shows that they experience periods of decline at fairly regular intervals. However, these periods have been followed with strong recoveries leading to record share market highs. As such, buying shares today while they offer wide safety margins could enable you to benefit from the long-term recovery potential.
A focus on quality
As with every economic downturn, some companies will not survive. For example, it may experience a decline in sales and be unable to pay fixed costs. Or, it may have taken on too much debt during the economic boom and be unable to service it.
Therefore, it is worth assessing the financial strength of a business before purchasing a slice. This may include focusing on its debt levels, cash flow strength and interest coverage ratio to realise the likelihood of it surviving a period of low sales. It may also be worth checking the company’s performance in prior economic downturns to assess its defensive characteristics when sales were under pressure.
Diversifying across multiple sectors
On top of buying high-quality companies for the long term, diversifying across sectors may be a sound move during a market crash. Some sectors, such as travel and leisure, may struggle to emerge intact from the current crisis. They may face a prolonged period of weaker demand that reduces return prospects.
As such, having exposure to a range of sectors could reduce overall risk and improve return prospects. This could enable you to fully access the share market’s long-term recovery potential. And it could boost your chances of generating a 7-figure portfolio in the coming years.
If you’re looking to get into the market today, see what you think of the following shares in our free Fool report below.
3 “Double Down” Stocks To Ride The Bull Market
Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.
He’s so confident in their future prospects that he has issued “double down” buy alerts on each of these three stocks to members of his Motley Fool Extreme Opportunities stock picking service.
*Extreme Opportunities returns as of June 5th 2020
More reading
- Why ETFs are great for passive investing
- Where to invest $10,000 into ASX shares next week
- Why the ultra-rich are hoarding gold
- Which shares to buy if the ASX tumbles
- 2 blue chip ASX 200 dividend shares to buy next 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.
The post How I’d invest in today’s market to make a million appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/37Tc1jl
Leave a Reply