Well I never thought I’d see the day. Thanks to the stock market crash, the FTSE 100 now yields a frankly incredible 6.86%. What makes that even more amazing is that it comes at a time when the returns on cash are next to nothing.
That figure of 6.86% (worth repeating, to confirm it isn’t a typo) is almost 70 times current base rate, following the latest cut. If you are looking to generate income, I would consider buying the index inside a Stocks and Shares ISA before the annual deadline exactly two weeks from today, at midnight on Sunday 5 April.
Say you invested your full £20k in a FTSE 100 tracker. At the current yield, you would have £38,831 after 10 years, almost doubling your money, even if the FTSE 100 does not rise at all in that time.
Let your money roll up
If you invest for 30 years, that rises to a whopping £146,381. That’s a life-changing amount, and any growth in the index will be on top of that. Not a bad return on £20k.
I know it feels daunting investing money in the middle of a stock market crash, and especially this one, when there are wider worries, such as what is going to happen to your job, or how secure your income is.
Obviously in any stock market crash, you should not invest cash you might urgently need in the months ahead. However, if you have long-term money to put away, this could be the buying opportunity of a lifetime.
There are plenty of bargain stocks on the index, which you may prefer to buy instead. Given today’s uncertainties, it can make more sense to spread your risk across the index, to reduce the dangers of one or two companies going bust.
I’d buy the FTSE 100
I would suggest buying a simple tracker, for example exchange traded funds iShares Core FTSE 100 ETF or Vanguard FTSE 100 ETF, or unit trust tracker HSBC FTSE 100. These have rock-bottom charges, which means you get to keep the vast majority of your returns.
Leave the money to grow, year after year, and remember to keep reinvesting all those dividends for growth.
The FTSE 100 has lost around a third of its value in the stock market crash, having peaked at 7,674 in mid-January. At time of writing it trades at 5,242, which makes a tempting entry point.
The recovery is going to take time. The stock market crash may not have reached its bottom so the index could fall further, and you may be tempted to delay your investment. That’s understandable, but if you leave it too long, the moment might pass. You also have to accept that you will never time your entry point perfectly, or catch the very bottom of the market.
If nervous, the best approach is to drip feed money in over the weeks ahead, taking advantage of any dips. Park money inside this year’s Stocks and Shares ISA allowance, then regularly shift it into your tracker.
Then sit back, self-isolate, and wait for brighter days. They will come.