Picture supply: Getty Pictures
This yr has seen some sturdy efficiency in inventory markets, together with a number of new all-time highs for the FTSE 100. However 2025 has additionally seen appreciable volatility – and the yr will not be over but. No one is aware of when the following inventory market crash will occur, however some traders are more and more nervous in regards to the prospects for the market in coming months.
Whereas the timing is rarely clear, what we do know from historical past is that in the end, the inventory market will crash once more.
What does that imply for traders?
The most effective of occasions, the worst of occasions
Briefly, there isn’t any single reply. It very a lot is determined by the place of the person investor.
For starters, some shares do properly whereas the market total plummets. So, in some instances, an investor can truly do properly in opposition to the backdrop of a inventory market crash.
That is rather like the way in which during which some do badly even in a bull market: traders who’re shopping for particular person shares slightly than the market total are decoupled from the general market efficiency. That doesn’t imply, although, that they’re resistant to wider financial elements that may harm or assist particular person companies and their shares.
However the huge image in my opinion is that the influence of a crash is determined by whether or not somebody has their cash available in the market, or is sitting on money. These are very totally different conditions!
Money may be king in a crash
When a inventory market crash comes alongside, sitting on a lot of prepared money prepared to take a position can let one scoop up blue-chip shares at cut price costs.
However whereas that may be doubtlessly profitable, it’s price taking into consideration that irrespective of how low a share goes, it might probably nonetheless go decrease. Generally a share value falls in a crash to what looks like cut price ranges – solely to fall additional.
Sitting on money ready for a crash also can imply lacking out on good durations available in the market.
Driving the storm
What about traders who already personal shares when there’s a inventory market crash?
Watching a share one owns fall in value may be painful.
It may make sense to promote if the underlying funding case has modified, for instance due to a modified economic system. However as a long-term investor, I’m sometimes joyful to carry a share I personal and await value restoration.
I suppose M&G (LSE: MNG) illustrates the purpose.
Shareholders who purchased the FTSE 100 asset supervisor within the March 2020 crash are actually sitting on a 141% share value achieve. Not solely that, however they’re incomes a dividend yield of round 18%. Wow!
What about prior shareholders, who noticed the M&G share value crash 56% from February to March 2020?
Those that held on have finished effective. The share value is now 7% larger than it was simply earlier than that crash. Traders who purchased simply earlier than that crash are incomes a dividend yield of round 7.8% — and M&G’s dividends have saved flowing all through.
As that crash confirmed, a monetary downturn dangers asset administration shoppers pulling out funds and hurting income.
However M&G’s sturdy model and money generative enterprise attraction to me. Even on the present value, I see it as a share for traders to contemplate.
