The Motley Fool

A 2020 TSX Market Crash Could Make You a Millionaire

Image source: Getty Images

2019 was a fantastic year for the TSX Index. Stock markets have been performing at all-time highs, and it appears that things have never been better, yet there’s also an underlying feeling of dread. Nobody wants to think about a market crash. The problem is, you can’t help but feel it coming soon.

It’s part of the economic cycle, and we’re likely to see a market crash soon. Where most investors fear a downturn because it can ruin their financial goals, I see it as an opportunity to become a millionaire. Yes, things are probably going to get very bad. Still, there is a silver lining to the gloomy clouds of an economic downturn.

Capitalize on the fear

Most investors tuck their tails between their legs and run in anticipation of a crash. I would be fearful as well if I did not know what an opportunity a bear market can present.

As the stocks start to decline, investors sell their shares and clutch their savings close to their hearts. The substantial sell-off sets off a chain reaction where the market crashes further.

A part of the economic cycle is that when the market sees a drastic decline, it also recovers. Yes, some businesses will be crushed by its effect, but there are some stocks oversold by shareholders.

If the underlying company for the stock is stable and well established, it can come out stronger than ever once the market stabilizes.

The crash will cause a severe dip in share prices for even the healthiest stocks, which is your opportunity to capitalize on the fear. Buying a robust stock on the decline will enable you to leverage its rise from the ashes.

A Big Six bank to bank on

Several stocks have the potential to bounce back with a vengeance in case of an economic recession. To this end, a stock like the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), for instance, could be ideal.

Scotiabank is the third-largest bank in the country, making an important part of The Big Six. It has a market capitalization of $89.14 billion, trading for $73.30 per share at writing.

It is one of the oldest banks in Canada, has been around since 1832. In that time, Scotiabank has secured the reputation of being one of the most substantial banks in the industry.

Scotiabank is also a worldwide leader in the world of finance and banking. Scotiabank has a phenomenal track record of share values appreciating and an impressive dividend growth streak.

The bank has outperformed the rest of the Big Six in terms of shareholder returns for 20 years. Its dividends per share have grown 6% over the past 10 years as well.

Foolish takeaway

At the time of this writing, the stock’s share price is up 12.54% from five years ago, trading for 4.2% lower than it was in November 2019, perhaps a decline in anticipation of a crash.

Allocating some of the contribution room in your TFSA could result in substantial appreciation in the long run.

I think that if the market crashes and you buy stocks like Scotiabank on the dip, you can stand a chance to become a millionaire by the time markets recover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.