£1,000 to invest? I’d buy bargain FTSE 100 shares in this stock market correction

Invest £1,000 in FTSE 100 shares, or any amount, can be a wise move for investors today. This may seem like a crazy idea, given the ongoing volatility of the stock market. After all, it is unrealistic to expect valuations to fall again, given the economic turmoil the UK is currently enduring.

However, the stock market is a moving machine. Therefore, the impact of even a steep recession may have been priced in today’s market capitalization. Not to mention the major issues that make that uncertainty ultimately short-lived.

In the long run, an excellent business will continue to grow. At least, that’s what history suggests. Let’s not forget the FTSE 100 and other leading indices have a perfect track record of recovering from more horrific crashes and corrections. In other words, now could be the perfect moment to build a portfolio of quality variety at discounted prices.

Avoid the pitfalls of FTSE 100 investing

Overall, the FTSE 100 index is actually trading above pre-correction levels. But not all constituents have been so lucky. And many companies continue to trade at values ​​below their historical averages.

Does this mean investors should only buy stocks that haven’t recovered? Not. In fact, it’s likely a recipe for disaster. Why? Because, in some cases, depressed valuations may be correct.

Inflation and rising interest rates are destroying even the best businesses in the world. But for some, it can be a death sentence. Overleveraged companies with poor financial reserves may be on the road to insolvency. And as the Bank of England will continue to raise interest rates in 2023, the situation could worsen.

Therefore, buying shares in a compromised FTSE 100 company is probably a bad idea. Fortunately, the index is also loaded with good business trading at a discount due to low investor sentiment. And while the market can continue to be volatile in the short term, successfully identifying and investing in these opportunities can prove very profitable in the long term.

Manage risk

One of the most powerful and easy-to-use risk management strategies for all investors is diversification. By spreading the investment portfolio across many companies in different industries, the damage from a failed position can be mitigated by the success of others.

Fortunately, there are FTSE 100 stocks in almost every sector, giving investors plenty of choice. But with just £1k, building a well-diversified portfolio by picking individual stocks isn’t realistic when you factor in trading costs.

Therefore, if people cannot contribute additional capital regularly in the future, it is better to invest in the FTSE 100 index fund. This provides exposure to each business in the index in just one transaction with minimal costs to worry about.

For those who like to take on additional risk and have a more concentrated portfolio, picking individual stocks is still an option. A well-chosen company can easily backfire and destroy wealth. But being a successful stock picker opens the door to market returns, especially during stock market corrections.