The Next Stock Market Crash Is Never Far Away: I’d Still Buy Cheap Shares Today

I think that buying cheap shares now could produce high long-term returns despite the ongoing threat of another stock market crash.

sad concerned deep in thought

Image source: Getty Images

Some investors may avoid buying cheap shares at the present time due to the potential for a second stock market crash. Risks such as Brexit and coronavirus could realistically prompt weaker financial performances from businesses that translate into falling share prices.

However, the past performance of the stock market shows that it has always experienced challenging periods. The key takeaway for investors is that it has always recovered from them to post new record highs.

Furthermore, today’s cheap share prices may factor in many of the risks facing the economy. This could mean there are buying opportunities available.

The threat of a stock market crash

The potential for a stock market crash may be elevated at the present time. Investors often become increasingly bearish during periods of major change when they find it more difficult to accurately forecast the outlook for businesses. With political uncertainty present across many of the world’s major economies and coronavirus continuing to cause disruption, it would be unsurprising for investor sentiment to weaken to some extent in the coming months.

However, many bear markets have been impossible to predict. This year’s stock market decline took place over a very short period of time, with very few investors accurately predicting that it would happen. It’s a similar story with previous market declines. Therefore, a downturn can take place at any time and without prior warning. This means that all investors must accept that their holdings may be in loss-making territory at times.

Long-term growth potential

Despite the constant threat of a stock market crash, indexes such as the FTSE 100 and S&P 500 have produced relatively impressive returns over recent decades. In fact, their annual total returns have been in the high single-digits even though they have experienced severe bear markets such as the global financial crisis and dot com bubble.

Their returns may have been more volatile than those of other assets such as cash and bonds. However, they have also been higher over the long term. As such, investors who are able to live with the potential for short-term paper losses may be better off investing money in a portfolio of stocks instead of holding lower-risk assets. Over time, they may deliver significantly higher returns.

Buying cheap shares today

At the present time, many cheap shares appear to account for elevated risks that could cause a stock market crash. Therefore, even though risks are higher at the present time, now could be an opportune moment to purchase a wide range of companies for the long term.

Their wide margins of safety may provide some support should there be another market downturn. Meanwhile, their low valuations may also mean they can offer impressive returns in the coming years that have a positive impact on your financial prospects.

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.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »