Since October 2023, the FTSE 250 has been on quite a roll. The index is up over 15%, potentially placing it on the path to reaching bull market territory in 2024. If that’s the case, investors could be set to reap some impressive returns in the coming months, especially since the index is still down 20% from its 2021 peak.
Stock market corrections happen a lot. But experiencing one as severe as 2022 is fairly exceptional. In fact, investors haven’t had to endure such a consistent decline since the 2008 financial crisis. And it’s possible that a similar event won’t repeat itself for a similar amount of time in the future.
That may sound like good news on the surface. But it also means that the ongoing recovery of the FTSE 250 could be the last chance to snap up top-notch companies at amazing prices for quite some time to come. With that in mind, let’s explore some strategies investors can use to capitalise on this potentially game-changing opportunity.
Investing in growth stocks in 2024
While there are numerous dividend-paying businesses in the FTSE 250, most are small- and medium-sized enterprises looking to join the ranks of the FTSE 100. That naturally gears the index more towards growth, and evidence of this is reflected in its superior long-term returns versus its larger sibling.
However, this performance has also come at the cost of significantly higher volatility. And that’s something investors will need to get comfortable dealing with if they intend to make the most of today’s buying opportunities.
Fortunately, there are some tactics that can help offset this risk factor. One of the most powerful is, arguably, diversification. By owning a wide range of firms from different sectors, the overall volatility of a portfolio can be reduced. At the same time, the impact of any positions that fail to live up to hopes can be offset by the success of others within the portfolio.
Another tactic to consider is pound-cost averaging. Instead of throwing a giant pile of cash into the markets in one go. Investors may be far better served to split this capital into smaller sums and drip-feed it into positions over time. This results in more transactions, increasing trading costs. However, it also means that investors have money at hand to capitalise on buying opportunities for both new and existing positions.
Riding on the tailwinds of a recovery
Since its inception, the FTSE 250 has delivered an average yearly return of around 11%, including dividends. That’s certainly nothing to scoff at. And given time, consistently investing a lump sum of capital each month at this rate could lead to a chunky pension pot.
However, during a recovery, returns can be sent into overdrive. Buying top stocks while they’re in the gutter paves the way to far bigger gains. And it’s possible to reap significantly larger returns versus the index’s historical average throughout 2024.
The post Is the FTSE 250 correction a once-in-a-decade chance to get richer? appeared first on The Motley Fool UK.
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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.
