“Why would anyone want to invest in the FTSE 100?” asks an article from January 2022. The article cites a capital gain of under 10% over 22 years as the reason why many investors are choosing to pull out of the FTSE 100.
Many investors, claims the article, are choosing instead to put their money into UK property and US stocks, both of which have seen growth of over 200% over this period.
But does performance like this mean you should pull out of or avoid the FTSE 100 entirely? Not necessarily…
Past performance doesn’t necessarily predict the future
In the last five years, the FTSE 100 has barely moved. However, this doesn’t mean the next five years – and beyond – are likely to be the same.
Earnings from the FTSE 100 started to grow in 1999, when investors were convinced that the internet would lead to rapid growth for businesses of all types. Their optimism was unfounded – and the 2009 crash, followed by the commodity price collapse on earnings in 2015, have led to the FTSE 100 demonstrating no real growth in investors’ eyes since then.
Of course, Brexit and COVID-19 have had an impact on the FTSE 100 in recent years, increasing investor pessimism. Remember, though: none of us know what the coming years will bring – the FTSE 100 could go up as well as down.
Diversification is key
Experts recommend diversifying your portfolio, with a mixture of safer investments and those that could be likely to exhibit some growth. The Motley Fool writer, Christopher Ruane, suggests that investing in the FTSE 100 could help to provide this diversification. However, rather than opting for an index tracker, he uses a stocks and shares ISA in a bid to “benefit from the strong performance of some top level shares while missing out on the poor performance of others”.
The FTSE 100 features the London Stock Exchange’s biggest companies in terms of market capitalisation. Because of this, it’s an index that, by its nature, will feature companies likely to perform well – how or even if you invest in those companies is down to you.
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