FTSE 100 shares have been on quite a roll recently. Following the ongoing stock market correction, which started in late 2021, the index fell to its lowest point in October. Since then, British large-cap shares have seemingly bounced back, climbing by over 12%, putting other indices worldwide, like the S&P 500, to shame.
And things may just be getting started.
FTSE 100 shares in times of crisis
Looking back throughout history, the FTSE 100 has endured multiple bear markets. This includes even the most severe crashes like Black Monday in 1987, the dotcom tech bubble which burst in 2000, the 2008 financial crisis and, most recently, the 2020 Covid crash.
Yet, in each instance, the index has made a comeback. In fact, it has always historically recovered before posting new record highs. And for the patient investors who saw the opportunity, it delivered spectacular wealth-building returns.
With that said, are FTSE 100 shares guaranteed to repeat this pattern in 2023? No. But given the 100% success rate since the index was established in 1984, I think it’s fair to say it’s highly likely. And with the recovery phase seemingly already complete, the next logical step in the cycle is for the index to climb to a new record high.
As such, time may be running out for investors to capitalise on this rare buying opportunity. And for those with £5k, or any amount, to invest, it may be a lucrative move to load up on these large-cap stocks, either by picking them individually or buying an index fund.
Nothing is risk-free
The potential gains from buying FTSE 100 shares today could be substantial. However, they are by no means a certainty. The United Kingdom is facing significant economic challenges, mostly due to inflation.
The Consumer Prices Index finally started to fall again in November. But it remains elevated at 10.7%. And yet, the latest report from the British Retail Consortium shows that the price of food jumped by 13.3% in December alone. The upward trend of prices is placing additional pressure on consumers, who are already being battered by skyrocketing energy bills.
All of this is to say that a recession may be on the horizon. And while large-cap shares typically have greater resilience to such headwinds, this may prove insufficient depending on the severity of a potential recession. In other words, the FTSE 100 may be set to drop again.
The bottom line
Investing in today’s markets comes with a lot of uncertainty. That’s why most investors are busy selling. Yet to quote 19th century banker Nathan Rothschild, the best time to buy is “when there’s blood in the streets”.
Some terrific shares within the FTSE 100 are trading significantly below their intrinsic value today. And while share price volatility undoubtedly lies ahead, the impact can be mitigated by adopting strategies such as pound-cost averaging.
That’s why I believe not investing in this stock market correction is, in fact, the greater risk.
