Whether you’re an experienced investor or just getting started, you’ve probably heard of the FTSE 100. Also known as the Footsie, its full name is the Financial Times Stock Exchange 100 Index. But what actually is it? It’s an index of the largest 100 UK companies listed on the London Stock Exchange. Many of these companies are well-known names such as BP, HSBC and Tesco, while others will probably be less familiar.
Buying FTSE 100 shares
Perhaps the most direct way to invest in the FTSE 100 is to buy individual shares of FTSE 100 companies on a share dealing platform. If the shares you buy go up in value, you’ll make a profit when you sell them. Shareholders also usually receive regular dividends, linked to the profits made by the company. But remember, shares can go up and down in value, so you could get back less than you invest. To increase your chances of making profits, consider investing in shares from multiple companies in different industries. This type of ’diversification’ can also spread your risk.
FTSE 100 companies are typically stable thanks to their size and reputation – but they’re not immune from downturns. So it’s always wise to spread your risk.
Buying FTSE 100 tracker funds
Another way to buy into the FTSE 100 is to invest in an index tracker fund. Tracker funds aim to track the performance of a particular index, such as the FTSE 100. The benefit of these funds is that you’re not putting all your eggs in one basket. If some FTSE 100 companies perform badly, this could be offset by others in the fund performing better. While index tracker funds usually have an ongoing charge, they’re typically low because they don’t cost much to run. There’s no fund manager being paid to research and select certain companies. Investing in a tracker fund means you could save money in dealing fees. You’re only making ONE trade but getting exposure to lots of companies – as opposed to buying lots of individual shares and paying a dealing fee each time.
You could diversify by investing in the FTSE 250 (this tracks the medium to smaller sized publicly listed companies) – or by investing in funds which track European or US Indexes.
FTSE 100 exchange-traded funds (ETFs) offer a way of investing in a range of bonds or shares in a single package. As the name suggests, they're traded on the stock market. That means, unlike other funds, you can buy or sell them at any time during the day rather than just once a day. When you buy and sell an ETF, you'll notice that it has two prices. The ‘ask’ price is the price you pay to buy the ETF. The ‘bid’ price is the price you get when you sell the ETF. The difference between the bid and the ask price is called the 'spread'. ETFs are generally cheaper to run than regular funds, and so often come with a low ongoing fee. Because they’re traded on the stock market, you may need to pay a dealing fee when you buy or sell an ETF.
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