The FTSE 100 is an index made up of the largest public listed companies in the UK. It has a range of firms from different sectors, ranging from services to traditional manufacturing businesses. As a UK-based investor, I think that FTSE 100 stocks offer me a good chance to achieve a higher level of return for £1,000 than the alternatives. Here’s why.
Finding value
The first reason I’d look to buy into FTSE 100 stocks is because the index looks better value to me than other stock markets. For example, when I look to the US, I can see that the NASDAQ has made new all-time highs at several points this year. The S&P 500 is another US-based index that has been performing very well this year.
This is great if I had invested my £1,000 a year ago, but what if I’m looking to put my money to work right now? In that case, I’m cautious about buying into areas that are already quite rich in terms of valuation. Rather, I’d look towards the FTSE 100. It trades around 7,100 points, a way off the highs seen only last year of close to 7,700 points. So in terms of value, I’d much prefer to buy into FTSE 100 stocks than those from the US.
Another reason I’m keen is because of the value even within the FTSE 100. The index contains many international stocks that are in sectors negatively impacted by the pandemic. For example, Cineworld and Carnival Cruises are two names that spring to mind. The cinema and cruise operators naturally have seen large share price slumps since the pandemic began.
These two cases are some of the worst, and in my opinion are high risk in nature. However, there are other names that are still needing time to recover that could offer me more attractive risk to reward characteristics.
FTSE 100 stocks with dividends
The third reason I would invest in FTSE 100 stocks is to enable me to get a yield via dividends. The Bank of England base rate is only 0.1%. This means that my cash isn’t even keeping pace with the rate of inflation!
What I can do instead is invest into companies that pay out a dividend. In this case, I can pick up income with an average dividend yield over 3%. Obviously, my capital is at risk due the fluctuating share price. Yet I’m happy to take this risk with my £1,000 due to the ability to participate in not only the dividends but also hopefully from a rising share price.
Finally, FTSE 100 stocks provide me with a way to express my view of an economic recovery from the pandemic. My opinion is that the UK economy will bounce back strongly in the second half of this year, supported by lower unemployment and higher GDP. If this is the case, then various stocks should see a share price rally.
The clear risk on my last point is if the delta variant or some other mutation causes a surprise with another lockdown later this year.
Overall, there are several reasons why I think that investing my £1,000 into FTSE 100 stocks offers good value. I wrote about two specific stocks I’m keen on right now.