The FTSE 100 is falling. Here’s why I’m loving it
It’s been a rough year for the FTSE 100 so far. Back in early January, investors were in a buoyant mood and the index was trading near the 7,650 points mark. However, investor sentiment has changed dramatically in recent months, due to uncertainty over Brexit and trade wars and, today, the Footsie is hovering around the 7,000 points level.
I’m sure there will be many investors who are disappointed with this year’s stock market returns. When stocks fall, the majority of investors get frustrated. However, personally, I’m not too concerned by the market’s recent dip. If anything, I see falling stock prices as an opportunity, instead of a setback. Here’s why.
I’m still accumulating assets
Given that I’m in my late 30s, I still have a long way to go until retirement. At this stage, my plan is to retire in my early 60s. So therefore, I still have at least 20 years to build up my retirement assets. That means that I’m still very much in the accumulation phase of my investing career.
Now, as a net buyer of stocks in the years ahead, should I prefer higher stock prices or lower stock prices? The answer, of course, is lower stock prices. As Warren Buffett says: “Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
As a net buyer of stocks, I want to be able to load up on as many high-quality companies at bargain prices as I can. I have cash on the sidelines ready to deploy, so when the FTSE 100 falls, I see it as an opportunity to get more for my money.
And right now, I’m seeing plenty of long-term opportunities. For example, insurance specialist Prudential, which has significant exposure to high-growth Asian markets, can be picked up on a P/E of just 10.1. Similarly, DS Smith, which manufactures cardboard boxes for Amazon, and is profiting from the e-commerce boom, trades on a P/E of just 9.2. The further these kinds of companies fall in price, the more interested I become in adding more to my portfolio.
Higher dividend yields
The other great thing about the FTSE 100 falling is that it means higher dividend yields are on offer. Regular readers will know that I love my dividends, as dividends can provide investors with a passive income stream, or they can be reinvested to boost portfolio growth. They’re a powerful force in investing that shouldn’t be ignored.
Dividend yields have an inverse relationship to stock prices. In other words, when stock prices fall, yields rise, and vice versa. So, with the FTSE 100 now well off its highs, I’m loving the yields that are on offer right now. For example, Royal Dutch Shell, which hasn’t cut its dividend since World War II, currently offers a prospective yield of around 6.1%. That’s a fantastic yield in today’s low interest-rate environment. Similarly, tobacco giant Imperial Brands, which has lifted its payout by 10% for nine consecutive years now, currently yields an astonishing 8.6%.
So I don’t see the recent FTSE 100 fall as a setback. Given my long-term investment horizon, I’m viewing lower valuations and higher yields as an opportunity. If the market falls further, I’ll continue to add to my portfolio.
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Edward Sheldon owns shares in Royal Dutch Shell, Imperial Brands, Prudential and DS Smith. The Motley Fool UK has recommended DS Smith, Imperial Brands, and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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