If you’re considering investing in public stocks, you’ll have a number of decisions to make. One of those decisions will be around indices.
Here in the UK, there are different indices on which companies can list, determined by their size, their growth and their markets. You’ll find a list of these here.
But what’s the difference between the AIM and other FTSE indices, and which are best for investors?
The Alternative Investment Market (AIM)
The Alternative Investment Market began life in 1995: a time at which many businesses couldn’t meet the strict requirements needed to list on the London Stock Exchange. Without such strict requirements, smaller and newer companies are able to float.
For investors, the AIM is attractive in part because of its tax benefits. It is also more likely to feature companies that are in a growth phase – which could lead to potentially attractive returns – and others laud the fact that less data and less focus from professional analysts could make it easier for someone to become an expert in niche AIM markets.
The Financial Times Stock Exchange Group (FTSE) manages hundreds of different indices – including the AIM. Generally, when people talk about FTSE investments, they’re talking about either the FTSE 100 (the 100 largest companies that are listed on the London Stock Exchange) or the FTSE 250 (the 101st to 350th largest companies that are listed). Combined, the two make up the FTSE 350.
For the majority of the last decade, the FTSE 250 has outperformed the FTSE 100. As TrustNet say, the FTSE 100 tends to have a weighting towards “mature companies operating in cyclical sectors”, while the FTSE 250 has more “powerful structural growth trends” and is home to more “growth-oriented companies”.
AIM or FTSE 100/250?
As with any investment type, there are pros and cons to both the AIM and the FTSE 100/250.
The Islamic Finance Guru lists the pros of the FTSE 350 as:
- Lower risk
- Higher security through stricter rules and regulations
They list the pros of the AIM as:
- Higher returns
- Gaining greater expertise in a particular niche
- Tax relief
Which option sounds better for you, your needs and your investment profile?
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