Today I am going to explain what is the FTSE 100 and how you can earn money investing in it.
The FTSE 100 is the stock market reference index for the United Kingdom. Every day many professional investors invest money in this index and in the companies that belong to it.
Here I show you all the sections of this post, so you can jump right to the topic that interests you more.
What is the FTSE 100?
The Financial Times Stock Exchange 100 index, also known as 100 FTSE index, is the most important stock market index of the United Kingdom.
The name comes from the two companies that launched this index, the Financial Times and the London Stock Exchange.
It is composed by 100 companies listed on the London Stock Exchange. These are the 100 companies with the highest market capitalisation.
Not all the companies represent the same portion of the index. Since this is a market capitalisation index, each company has a different share of the index.
As a result, the companies with the highest market capitalisation represent a bigger size. Popular British holdings like Rio Tinto, Anglo American, Royal Dutch Shell, Imperial Brands, HSBC and Barratt Developments belong to this index.
The value of the FTSE 100 is driven by the share price of these securities.
Many of these companies have a significant presence internationally. Consequently, this index is not only an indicator of the British economy, but also the economy of the whole world.
You can find the list of the companies that belong to the FTSE 100 on Hargreaves & Lansdown.
This is one of the most important stock market index in the world, similar to the S&P 500 in USA and the Nikkei 225 in Japan.
History of the FTSE 100
This index has a long history, but not as long as the Stonehenge stones pictured above 🙂
This index was born on 1984, when the Financial Times and the London Stock Exchange created it. Before that there was already a stock index in the United Kingdom, the FTSE All-Share.
Since the FTSE 100 contained the most significant companies, its popularity grew quickly. Soon it was the most relevant indicator of the UK stock market performance.
In 1995 the FTSE group was created by the joint venture of Pearson (former parent of Financial Times) and the London Stock Exchange.
It was launched at the initial value of 1000 points, and it has grown a lot since then. Today, 36 years later, the index stands at the 7150 points.
What is the all time high of FTSE 100? It reached the 7885 points on May 2018.
As you can see we are close to the all time high, we just need a 10% growth 🙂
FTSE 250 and other FTSE indices
As mentioned before, the FTSE 100 was not the first UK stock market index. The FTSE All-Share was launched before, on 1962, and it’s still running nowadays.
There are other important stocks indices in the UK stock market. The most popular is the FTSE 250, which includes the 250 next largest companies after the FTSE 100.
You can also find the FTSE 350, which is the sum of the FTSE 100 and the FTSE 250. Lastly we have the FTSE SmallCap Index and the FTSE Fledging Index,
The FTSE All-Share aggregates the FTSE 100, FTSE 250 and FTSE Small Cap. This makes it the most complete UK index.
Average return of the FTSE 100
If we calculate the return from its birth, the FTSE has averaged a 9% annual return. This is a great return.
If you had put 1000£s in 1984, you would have now 23,000£s. Not bad, right? 🙂
The FTSE 100 average annual return over 36 years is 9.1%
If you are wondering what is the dividend yield of the FTSE 100, you don’t have to wonder any longer. The FTSE 100 historical dividend yield is 3.4%.
Since this index averages a 5.6% price growth, if you assume dividend reinvesting, you obtain the 9% average return.
This is a very high return, overall when you invest for the long term. The return is much higher than the one you would get investing in other products like bonds.
When you invest in the FTSE 100, it’s important to know that there is certain volatility, prices rise and fall. Recent news, both UK and international, have a big impact in the financial markets, hence on FTSE 100 investments.
For example this week the index has dropped 3.5% due to the coronavirus fears. This is the consequence of global markets, all investments are connected.
If you want to check what is the value of the FTSE 100 today, you can use yahoo finance to check its value on real time.
How to invest in the FTSE 100 index
If you want to start investing and trading the FTSE 100, nowadays is easier than ever. There are many index funds and etfs that track the performance of the index.
You can invest in these index funds and etfs through many brokers. I recommend you to use the broker DEGIRO.
DEGIRO has the lowest fees for investing in stocks and shares. I have not found any other broker with lower fees. But that’s not the only advantage, its platform is very intuitive and easy to use.
I am going to sum up the options you have to register on DEGIRO:
Depending on your circumstances, click on the link that suits you the most!
If you want to learn more about DEGIRO, take a look at my super guide about this wonderful broker.
More posts related to investing in stocks
If you want to carry on learning about stocks, I recommend you the following articles:
- Learn how to invest in stocks
- S&P 500 PE ratio, how to know when to invest in S&P 500
- The intelligent investor, book summary and guide
- January 2019 portfolio analysis
If you have any questions, please ask them on the comments section below. I promise I will answer them 🙂