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A big thing that puts people off the stock market is the chance it could crash. But while worrying about that is understandable, it’s not as bad as it might seem.
As long as investors are properly prepared for the possibility of falling share prices, there’s no need to worry. So what should you do to make sure you give yourself the best chance?
Investment returns
Over the last 10 years, the FTSE 100 has returned an average of 8.5% a year. That’s far better than what cash savings have been offering and that makes a huge difference over time.
With the stock market, though, things don’t just go up every year. Share prices fell in 2018 and 2020, meaning an investment in January of those years was worth less in December.
| Year | FTSE 100 Total Return |
|---|---|
| 2018 | -8.7% |
| 2019 | 17.3% |
| 2020 | -11.5% |
| 2021 | 18.4% |
| 2022 | 4.4% |
| 2023 | 7.1% |
| 2024 | 9.7% |
| 2025 | 22.8% |
Importantly though, even investments made in bad years have done well over time. A good example is 2020, when the FTSE 100 fell 11.5% in a year.
A £10,000 investment in a FTSE 100 tracker fund at the start of 2020 was worth around £1,5780 early Friday (2 January), before the index hit 10,000 points. That’s an average annual return of 7.9% – well above what cash offers.
Coping with a crash
The point here is clear – even an investment in a bad year has potential to do well over time. There are no guarantees, but this is what investors need to remember.
Strictly, share prices falling 11.5% isn’t a crash. But the FTSE 100 actually fell 23% at the start of the pandemic (which is crash territory) before a bit of a recovery.
The key to dealing with crashes is being able to stay invested even when prices are falling. There’s a way to lose money in the stock market — by selling when prices are low.
Anyone who invested at the start of 2020 and sold at the end of it lost money. But those who didn’t managed that return of almost 8% a year. Those who bought when prices were at their lowest might have made even more!
How to stay invested
I think the easiest way to stay invested is to focus on buying shares in quality companies. One example from my portfolio is JD Wetherspoon (LSE:JDW) – a FTSE 250 pub chain.
I’ve held the stock for a few years and it’s been a bumpy ride. Higher staffing costs have hit it hard, but I’ve never really thought about selling.
The main reason is that the firm has consistently grown its sales in that time. And its focus on value for customers means I think there’s a good chance it can continue.
JD Wetherspoon has been an outstanding operator in a difficult industry. But when the stock has faltered, focusing on the business has helped me avoid selling at a loss.
Buying shares
The stock market might crash in 2026. But even investments made just before a big drop in share prices can work out very well, especially with high-quality companies.
JD Wetherspoon’s scale gives it a cost advantage that it uses it to offer lower prices than competitors. That’s why it’s a stock I think anyone starting out investing should take a look at.
