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Why a second stock market crash could help you make a million and retire early

Royston Wild
Businessman looking at a red arrow crashing through the floor

Share markets were stable on Monday but don’t be fooled. Investor confidence is wafer-thin and another stock market crash could be just around the corner. Concerns over the spread of the coronavirus, rising tensions between the US and China, and Brexit are a few of the issues that could send the FTSE 100 and FTSE 250 indexes toppling again.

Stock investors shouldn’t be panicked, though. If you buy shares with the intention of holding them for years, then a second stock market crash could provide you with another brilliant investing opportunity. Those who make millions from their investments and retire early on their winnings tend to be those who grasp opportunities to max out their returns with both hands. That means buying low and selling high.

Market crashes have minimal impact

Stock market crashes can be scary things. When investors sell everything including the kitchen sink one can be forgiven for thinking that the end of the world is nigh.

It’s codswallop, of course. Sure, sell-offs in financial markets are dramatic, and Hollywood has made a fortune out of chronicling them in all their glory. But the impact of market crashes on long-term stock market movements is actually quite modest. It’s likely that a second stock market crash in 2020 would have similarly benign consequences for investors, too.

Share do sometimes plummet in response to critical macroeconomic and geopolitical issues, like Covid-19 more recently. They also have a habit, as data shows, of overcoming these temporary setbacks to rise to new record highs.

The rocketing FTSE 100

Let’s say you bought into the FTSE 100 25 years ago. Between then and now stock investors have had to endure a number of calamities that have damaged the world economy. These include the Dot-com bubble, 9/11 terror attacks, sub-prime mortgage crisis and banking system collapse, eurozone debt crisis and now the coronavirus crisis.

Quite a list, I’m sure you’d agree. But those who had bought into a FTSE 100 tracker fund back in 1995 would still be celebrating wildly. The Footsie has, after all, risen almost 90% in value during the past quarter of a century. It currently sits around 6,200 points.

I’m getting ready to get rich

Even if a second stock market crash happens, there are still plenty of reasons to be optimistic. There’s already an ocean of shares trading at dirt-cheap valuations. More importantly, there are firms whose profits outlooks for the next decade and beyond remain exceptional. And ones that have the financial might to ride out any weakness in the global economy during the next few years. A fresh market crash would make them look even tastier from a valuation perspective, too.

Economic conditions will likely be favourable enough to help them soar in value during this decade, too. Forget about the initial Covid-19 shock, for a second. Unprecedented monetary support from central banks will likely boost stock profits and share prices for years to come.

Any second stock market crash should, therefore, be viewed as a fresh opportunity to max out your returns by buying in at rock-bottom levels and eventually selling for a tidy profit. This is how I for one plan to make a million and hopefully retire early.

The post Why a second stock market crash could help you make a million and retire early appeared first on The Motley Fool UK.

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Royston Wild 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.

Motley Fool UK 2020