The FTSE 100 market crash caused by coronavirus means that many large-cap shares trade on low valuations.
As such, now could be the right time to invest £1k, or any other amount, in a diverse range of FTSE 100 stocks. Over the long run, they have the potential to deliver high returns that improve your financial prospects.
Investing £1k today
One of the key aspects of investing in FTSE 100 shares is diversification. It means that you spread risk across a wide range of companies so that you are less reliant on a small number of businesses to generate your profits.
Diversification is arguably more important than ever at the present time. Some industries are likely to be harder hit by coronavirus than others. Likewise, some countries will be able to ease lockdown measures and return to economic growth sooner than others. Having a mix of businesses that operate in different locations and in varying sectors could reduce your risks of being negatively impacted by coronavirus over a sustained period.
Of course, it is difficult to diversify when investing £1k. The cost of buying multiple stocks may hurt your overall returns. As such, it could be a good idea to buy shares in a FTSE 100 index tracker fund. It offers exposure to all of the companies in the index at a very low cost. It could prove to be a means of benefiting from the FTSE 100’s long-term recovery potential while minimising your risks through diversification.
FTSE 100 growth potential
At the present time, a number of FTSE 100 shares appear to offer excellent value for money. They could produce stronger returns than the rest of the index, which means that investors may be able to outperform the wider market through buying individual stocks.
In some cases, FTSE 100 stocks are undervalued because investors have flocked to safer assets such as cash and bonds. Therefore, even though coronavirus may not be affecting the financial performances of some large-cap companies, their share prices are weak because of low demand for equities among investors. Through buying such companies while they trade at a low price level, you can take advantage of the cyclicality of the stock market.
Although the FTSE 100 may have an uncertain near-term outlook, the index appears to offer strong long-term recovery potential. Its track record of recovery from the very worst downturns is exceptional, with it having produced new record highs following ever one of its past bear markets.
Therefore, whether you have £1k or £100k to invest, now could be the right time to gain exposure to the FTSE 100. Its low valuation, recovery potential and scope to outperform other assets in the long run could boost your financial prospects after what has been a challenging time for investors.
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Peter Stephens 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.