Some of you might feel that investing £1k, or any other sum, after the stock market crash is risky. There is a danger the index could fall back after the recent recovery. Much depends on how soon we move out of lockdown, and how much long-term damage has been done.
Yet now could be a good moment to buy a spread of FTSE 100 shares, provided you aim to hold for the long term. While the risks are high, the danger is offset by the fact that share valuations are much lower. When the recovery comes, we could enjoy a massive relief rally.
The stock market crash is your chance
Investors are wary right now. Despite massive fiscal and monetary stimulus, the FTSE 100 is trading 15% lower than in January. Many companies have fallen far lower than that, trading at their lowest valuations for many years.
There are some sectors I would avoid, such as cruise operators. Others may be undervalued, as they will only take a short-term hit from the lockdown. At times like these, share prices fall across the board. Good companies are sold off with the bad. That makes today a great time to buy top companies with strong balance sheets, loyal customers, steady cash flows, minimal debts, and bags of recovery potential.
Put your £1,000 to work
I can’t remember a tougher time for the economy. The financial crisis was a shocker, but at least we were allowed to do our jobs during that stock market crash. So please don’t underestimate the scale of the challenge.
However, the economy has suffered before. No boom lasts forever. Nor does any bust. Eventually, the growth will return. We don’t yet know how fast the recovery will be. That’s why you should invest in cheap FTSE 100 stocks today, but with the aim of holding them for the long term. If you do that, you can wait for the good times to come again.
The companies that do survive the stock market crash and aftermath could be nicely placed, as weaker rivals go to the wall. They may get further boost from monetary stimulus, which could drive up their valuations.
I’d buy bargain FTSE 100 shares today
If you’re investing a relatively small sum, such as £1,000, it’s hard to get the diversification you need by investing in individual company stocks. It may be wise to start with a FTSE 100 index tracker fund instead. This gives you exposure to all the UK’s top blue-chips at low cost.
If you’ve more money to invest, you can start building a portfolio of stocks to turbo-charge your growth. The stock market crash looks like a great opportunity to buy FTSE 100 stocks while their values are low. Then sit tight, and wait for the stock market rebound. And it will, given time.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.