How a stock market crash could turbocharge my Stocks and Shares ISA

It sounds counterintuitive to say that crashing share prices can benefit from my Stocks and Shares ISA. The last time the market crashed in 2020, my ISA portfolio lost more than a quarter of its value in a matter of weeks. So why do I say that misfortune can be a blessing?

Well, the UK stock market has an amazing track record. During the last forty years, the main crashes were in 1987 (called ‘Black Monday’) and in 2000, the dotcom technology boom and bust. In addition, there is the global financial crisis of 2007/08 and the disaster of the 2020 pandemic.

In each case, the FTSE 100 has recovered and powered on to reach new heights. Just this month, the index has reached record levels. If I scooped up shares in each accident, I would be sitting on some major gains.

For example, in 1987, Footise went from 2,367 to 1,582 in December before falling. It recovered its previous value in more than two years. Investors who buy near the bottom will double their money in six years!

This is a turbocharged return compared to the FTSE 100’s 8% average annual return (with dividends reinvested_.

Could it crash in 2023?

Stock market crashes can happen at any time. It is usually defined by a double drop in the major stock index within one or just a few trading days. However, the market may go down for a few days or even weeks after that. Could it happen this year?

The truth is that it is almost impossible to predict. But with the FTSE 100 this week reaching an all-time high, it doesn’t surprise me to start hearing such chatter.

However, it is important for me to always keep in mind that some market participants are regularly bearish. These are known as ‘permabears’. That is, investors who are always negative about the future direction of the market.

If I listen to them, I will be out of the market most of the time, and therefore miss out on most of the results. But his arguments can be very persuasive. Humans appear to be wired to respond to negative rather than positive news.

These arguments are often smarter than bullish long-term investors, who may sometimes invest in blind faith.

But as the old saying goes, “Even the clock that stops is right twice a day‘”. So I generally don’t listen to negative predictions from permabears. However, I remain invested, remain optimistic, but also prepare myself for the worst.

Keep some dry powder

When I first started investing, I wanted to buy stocks as quickly as possible. It is quite common and understandable. After all, I’m not going to get an average 8% return by leaving cash in my Stocks and Shares ISA.

However, as the year has passed, I have moved to have cash on hand in the ISA ready to be distributed if the market crashes. I’m not really hoping for an accident, of course. But if that happens, my cash pile will give me the opportunity to take advantage when high-quality stocks go on sale. History teaches me that markets have a habit of rising again.