£5k to invest? I think now’s the time to start buying the FTSE 100
If you’re looking for somewhere to invest in the current market, I highly recommend buying the FTSE 100. After recent declines, the index is now trading at one of its lowest levels since the financial crisis. What’s more, its dividend yield has shot up to around 5.7%.
FTSE 100 on offer
The reason why the FTSE 100 looks to be the best place to invest your money right now, is diversification. The index is comprised of 100 of the largest blue-chip companies in the world. This means investors can buy these companies at the click of a button, without having to worry about conducting due diligence on each business.
In the current environment, it’s difficult to tell which businesses will prosper and which will struggle. We don’t know how much of an impact the Covid-19 outbreak will have on the global economy (and the FTSE 100) at this stage. Therefore, it’s impossible to tell which companies will prosper and which will struggle.
For example, it’s clear airlines are having a tough time at the moment. But this could also have an impact on banks and oil companies. The knock-on effects could be more significant than any prediction. That makes it almost impossible to pick individual stocks at the moment.
While we don’t know what the future holds for the global economy in the short term, over the long term, it becomes easier to project.
It’s highly likely the global economy will be larger in 10 years than it is today. That suggests company earnings will be higher then than they are today. Higher earnings should translate into higher stock prices. Therefore, we can assume the FTSE 100 will move higher over the next decade.
Indeed, before the FTSE 100’s recent decline, it had produced a return for investors of approximately 9% per annum over the past three decades. The same can be said for the index’s dividend yield. As earnings grow, companies will return more cash to investors. This should lead to a higher yield from the FTSE 100.
So, while some of the FTSE 100’s constituents might decide to cut their dividends to conserve cash over the next 12 months, during the next few years, dividend growth should return.
Cheap and cheerful
The FTSE 100 is also easy to buy, and cheap to own. There’s a range of funds out there on the market that offer exposure to the FTSE 100. Most of these charge less than 0.1% per annum in fees to manage your money.
All you need to do is set up a regular investment plan with your online broker, sit back, and relax. The investment manager will take care of the rest.
That’s why if you’re looking to invest a lump sum in the current market, the FTSE 100 could be the best way to do it. The index’s diversification, long-term potential, and the wide variety of funds on offer to track the market, make it a highly attractive way to play the current market.
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Rupert Hargreaves owns no share 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.
Motley Fool UK 2020