In my experience, trying to time the FTSE 100 with investments has been fruitless. I used to think that I knew better than others and would look to buy stocks within the index at just the right time. These days, I have a more passive approach regarding timing. If I was starting the process of regularly investing £500 in the FTSE 100 each month, here’s what I’d tell myself.
Finding the time to invest
Given that I lead a busy life, the first point would be to consider an investment plan that directly takes money out of my account each month. These are easy to find and set up. The benefit of such of direct debits is that I’ll never forget to invest the money each month. It will go out and straight into the FTSE 100 tracker or other fund that I’ve chosen.
The other benefit is that it takes the pressure off me trying to time the market. The money will come out of my account at the same time each month, and go into the market.
If I don’t want to go into this automated way of investing, I can do it manually. However, the second point I’d make clear is that I still need to have the mentality of drip feeding money into the market each month.
The benefit of doing this manually is that I do have control to take advantage of opportunities as they arise. For example, over the course of the past few months we have seen a several periods in the FTSE 100 when there have been two or three days of sharp sell-offs in the market. If I had my £500 ready to go for that month, I could deploy it on the dips.
This isn’t the same as trying to time the market and holding off investing for months. I’ll still be investing in that month, but just tactically buying a dip.
Getting the right blend of FTSE 100 stocks
A third point would be to drip feed into a mix of different types of stocks. At the moment, there are FTSE 100 stocks that are hot. However, as I build up my portfolio over time, things might change. So investing in a mix of stocks would be my best and lowest-risk option.
Such stocks could include companies from a broad mix of sectors across the economy. They could also include stocks that pay out generous income from dividends. Further, a mix of mature companies along with new entrants allows me to get a good selection from the index.
Finally, the last point relates to the monetary amount. £500 would allow me to get a good level of exposure over time, without burdening my cash flows in the same way that committing £1,000+ a month would.
The main takeaway here is that I’m investing an amount that I can be comfortable with over time. When I add this up over several years, my FTSE 100 investment pot can really turn into a sizeable sum!
Overall, I feel all of the above points are relevant in helping me to effectively invest in the FTSE 100 over time.