Buying stocks after a market crash can be a difficult process for any investor. There is a realistic chance that stock prices could move lower in the short run due to economic challenges that may lie ahead.
However, the high yields that are on offer across a number of industries may make equities attractive on a relative basis for income-seeking investors. Likewise, for investors who are seeking to build a retirement nest egg over the long run, the low valuations on offer across the stock market could provide buying opportunities that boost your returns in the coming years.
Income opportunities
Investors who are seeking to generate a passive income from their capital today can now access higher yields in many cases than they could at the start of 2020. The recent market crash has caused a wide range of companies to trade at lower stock prices, which means that their yields will have risen as long as their dividends are being maintained.
Some companies that are continuing to pay dividends in 2020 due to coronavirus not impacting materially on their financial performance have still experienced falls in their stock prices. Investor sentiment towards equities has declined over recent months, as investors have sought refuge in safer assets such as gold, bonds and cash.
As such, now could be the right time to buy companies that have solid finances and affordable dividends while they offer high yields. On a relative basis, they could produce high income returns that boost your passive income over the long run.
Building a nest egg
For investors who are building a retirement nest egg and do not require an income from their portfolio for many years, now could be an excellent time to buy stocks.
The track record of the stock market shows that it has experienced infrequent, but somewhat regular, bear markets in its history. They have been hugely challenging for investors at the time, since they cause paper losses in many cases. But the stock market has always been able to successfully recover from all of its downturns and bear markets to produce long-term growth.
As such, buying stocks after a market crash has been a sound strategy that has been pursued by many successful value investors. Although it can produce short-term losses should the outlook for the economy worsen and investor sentiment weaken, over the long term a recovery is highly likely. For investors who have a long-term time horizon, therefore, buying high-quality companies today could be a highly profitable move that increases the size of their retirement nest egg.
Risk considerations
Clearly, diversifying across a range of businesses is highly important at all times. It is, however, even more crucial during periods of economic uncertainty where some industries can come under severe pressure.
Therefore, building a portfolio of stocks that operate in different sectors could reduce your overall risks, and strengthen your returns in the coming years.
