The chances of a second stock market crash continue to be elevated. Risks such as an ongoing rise in the number of coronavirus cases, as well as political challenges caused by factors such as the US election and Brexit, may lead to weak investor sentiment in the coming months.
As such, there could be a buying opportunity for long-term investors. Through purchasing high-quality companies at low prices on a regular basis, you could increase your chances of making a million.
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Buying high-quality stocks at low prices
Should a second market crash occur, buying the best stocks you can find at the lowest prices could be a sound move. They may not only stand a better chance of surviving a potential economic downturn, but may be better placed to benefit from a likely long-term recovery.
In terms of the quality of a company, this can be assessed through its financial performance. For example, companies with manageable debt levels and a long track record of outperforming their peers in periods of economic difficulty could be more attractive than their rivals. Furthermore, assessing the size of a company's competitive advantage may help you to find the most attractive businesses. For example, they may have unique products or strong brand loyalty that allows them to deliver rising profitability.
Buying such companies at low prices during a market crash may improve your portfolio's long-term outlook. While high-quality businesses may not be among the cheapest stocks around, they could be worthy of premium valuations relative to their sector peers.
Buying regularly in a market crash
Should a second market crash occur, buying shares regularly in small amounts may be a logical approach. After all, it is exceptionally difficult to know how long a market decline will last, as well as when its recovery will take place. Therefore, investing a lump sum may mean that you are either too early, or too late, and fail to obtain the most attractive prices.
Many sharedealing providers offer regular investing services. They provide a convenient means of buying stocks on a monthly or weekly basis. In many cases, they charge lower commission versus the standard rate, which may make regular investing no more expensive than investing a lump sum in the stock market.
Making a million
Clearly, it will take time to make a million – even when investing after a market crash. However, the stock market's high single-digit returns over recent decades show that investing regularly can lead to a surprisingly large nest egg.
For example, investing $750 per month over 30 years could produce a seven-figure portfolio if an 8% annual return is achieved. By investing when shares are cheap, such as after a market decline, you could obtain an even higher rate of return, and improve your chances of making a million.
