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How to invest in the Financial Times Stock Exchange 100 Index (FTSE 100)
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We’ll walk you through all the different ways to get some exposure to the FTSE 100 Index, enabling you to make informed decisions with your money.
Where can I buy into the FTSE 100 Index?
What is the FTSE 100 Index?
The Financial Times Stock Exchange 100 Index (commonly called the FTSE 100, or the “Footsie”) is a share index of the 100 largest stocks on the London Stock Exchange by market capitalisation. Some of the largest, most profitable companies in the world are tracked by the FTSE 100, such as GlaxoSmithKline and HSBC. The index represents a wide variety of different sectors and industries and has a market cap of well over £2 trillion.
Is it a good investment?
Under the right circumstances? Absolutely. You can tap into a large number of expanding companies, offering a great combination of growth potential and risk management through diversification. If you can time an investment into the FTSE 100 when the market is looking bullish, you can ride the index as it increases and release large profits. However, it is important that you do your due diligence and keep track of the FTSE 100 price, as it can be volatile.
Just make sure to avoid a bear market, as stock indices big and small tend to suffer big losses under those conditions.
How do I invest in the FTSE 100 Index?
We propose this three-step plan that you can follow when you start your investing journey:
- Choose an investment type
- Use our top tips to succeed
- Choose a platform to invest with
1. Choose an investment type
There are multiple ways to invest, depending on factors such as the relative size of transaction fees for each approach, as well as the level of customer service that you want when investing. Here are some of the most popular options and a brief summary of why you might want to consider them.
ETFs
An ETF (exchange-traded fund) is an investment fund that’s traded on a stock exchange in a manner similar to an individual stock. You can trade FTSE 100 ETFs any time during regular stock market hours, giving them an edge over some other investment methods which only trade once a day when markets close. ETFs usually include numerous different assets at once, such as stocks, bonds, commodities, or all the stocks listed on an index such as the FTSE 100. An ETF can be a smart, low-cost way to start on the stock market, granting you access to a diversified portfolio of 100 blue-chip stocks along with the flexibility of being able to trade your investment at any time during the day.
If there’s any downside to investing in ETFs, it’s this: while diversification helps ETFs mitigate risk, it also means that investors are left holding both the best- and worst-performing stocks within a given index. More selective investors might thus choose the next investment method on our list instead.
Individual stocks
If you want to focus on just the top-performing stocks in the FTSE 100, here’s what you can do: Buy FTSE 100 index shares of all 100 stocks that the index tracks. This allows you to evaluate each stock as you go, then decide which FTSE 100 stocks you want to keep and which ones you want to sell, something you can’t do when you invest in the index as a whole.
The problem with buying 100 individual stocks is that you must make 100 separate trades to buy each one, plus even more trades when you sell the stocks you elect not to keep. This leads to lots of transaction fees and lots of time spent trading. Beginner investors with smaller budgets and less time to burn might want to try a different approach.
Mutual funds
A FTSE 100 fund is a professionally-managed investment fund that collects money from many different investors, then invests the capital into different assets. A FTSE 100 fund (also called an index fund) is a mutual fund designed to follow the performance of the FTSE 100, and thus enables you to invest in all 100 of the FTSE 100’s stocks at once. A mutual fund is bought through a broker, or directly from the company that administers the fund.
One drawback of a FTSE 100 fund is that it can only be bought at the end of the stock market’s trading day. Another is that mutual funds charge higher fees than ETFs do. Therefore, as a general rule, a FTSE 100 funds can work for investors who want to buy and hold for a longer stretch of time, whereas people looking to make money trading their investments in the short term would be better off with a FTSE 100 ETF.
2. Use our top tips to be a successful investor
Before you invest, check out these top tips. By keeping these in mind, you’ll be able to make smarter investment decisions and avoid taking on any unnecessary risk.
- Do your research. When it comes to investing, you need to put in the time and the work in order to succeed. In this case, that means evaluating all the pros and cons, and whether that investment fits your goals. The next step is to build a sound investment plan, which will improve your chances of success and enable you to make calm decisions when the market becomes volatile. You can learn more with our trading courses.
- Set a budget. The budget you set should account for your specific tolerance for risk, as well as how much money you are able to lose without experiencing difficulties. Don’t crush your confidence or your ability to make future trades by taking bigger losses than you can afford to swallow, and never invest more than you can afford to lose.
- Select the right platform. When deciding on the right trading platform, consider factors such as the relative size of transaction fees and the level of customer service and advice you feel you need. Shop around, pick a platform, and then don’t be afraid to change your approach if you’re not getting what you want out of the experience.
- Grow your investments gradually. You can’t master all investing concepts right away, so the size of your investments should reflect your experience level. Make smaller investments at first and reinvest any profits you make to grow your capital over time. You can always invest more as you become more experienced.
- Think long-term. Keeping an eye on your long-term goals will help you decide when is best to cash in your profits, cut your losses, or invest more into the FTSE 100.
3. Choose a platform to invest with
OK, so you want to invest. But where do you put your money to make that happen? Here are some of the best options:
- Brokers & trading platforms. Online brokers offer easy-to-use platforms with low prices, and very little hassle. However, online brokers don’t usually offer in-depth investment advice. So if you’re looking for a more personally-tailored customer experience, you might want to consider another option.
- Robo advisors. Robo advisors use algorithms to execute trades, so you don’t need to be involved when it’s time to press the ‘buy’ button. Some robo advisors will also allow you to discuss your investment strategy with an actual human advisor to help you take a good approach in terms of the instructions you give the robot. Combine that available guidance with relatively low trading fees, and it’s easy to see why robo advisors are an attractive option for many investors. Just know that robo advisors are still a more hands-off investing approach than a top financial advisor will offer.
- Financial advisors. Financial advisors offer the most investment advice to investors. They’ll look over your financial goals and explain how each investment option and decision fits with those goals. Of all investment options, financial advisors charge the most for their services. As investing can get complicated, the fees charged by financial advisors can sometimes be worth it. However, since it isn’t too difficult, a financial advisor is unlikely to be worth the money in this instance.
- Banks. Investing through your bank grants you the convenience of having all of your financial instruments (e.g. checking account, savings account, mortgage, line of credit, and investments) in one place. The problem is that banks tend to charge high fees without providing the level of service that, say, a financial advisor offers. So other than the convenience factor, banks might not provide a level of service good enough to justify the extra expense you’ll incur.
Ready? Here’s our top recommended broker
What should I do now?
Ready to get started? If so, simply head over to your chosen platform’s website, select the investment product you wish to buy (an ETF, individual stocks, or a mutual fund), and click buy. After you have invested your money, you’ll want to keep up-to-speed on any news affecting the UK economy, so you can react to market events to preserve your capital and make bigger profits.
Try some of our investment courses for beginners
Stock Markets 101
Long-term Stock Investing
Short-term Stock Trading
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