I think it’s a great idea for me to invest in FTSE 100 dividend stocks. The stock market has a long-standing reputation as a wealth builder. But that’s only true if we invest sensibly without taking too many risks.
And I understand that many people dislike the idea of taking any risks at all with their hard-earned cash. After all, losing money can be easy. But making it, or earning it, can be hard work and challenging.
Why I prefer dividend stocks
The safest place of all to keep money is in a cash savings account. The interest can be steady and there’s no risk to capital saved. Indeed, cash we put into UK banks or building societies is protected by the Financial Services Compensation Scheme (FSCS).
For firms authorised by the Prudential Regulation Authority, the FSCS deposit protection limit is £85,000 per authorised company. So that means our cash savings are protected up to that limit if a bank or building society goes bust.
But I prefer not to keep my cash savings in bank accounts. And that is because the interest rates paid almost always fall short of the prevailing rate of general price inflation.
So the longer I leave money in a cash savings account, the further the spending power of my money will likely decline. And I reckon that’s a ‘hidden’ risk that is often underappreciated. So I’d keep enough cash in savings for my immediate needs and invest the rest elsewhere.
The unfortunate truth is that investing money anywhere involves embracing risks. But stocks and shares overall have a good long-term record. And the annualised returns from the asset class of equities (stocks and shares) has beaten most other major classes of assets over time. So equities have beaten real estate (property) and cash savings, for example.
A depressed market
And just recently the stock market has been depressed. First, we’ve endured a correction in many small-cap stocks and big tech and growth companies over several months. And hard on the heels of that, the troubles in Ukraine hit the markets.
But such events can be transitory. And historically, FTSE 100 stocks have been good at leading the charge into recovery after such shocks. So I think it’s a good time to hunt for fallen FTSE 100 stocks now. There’s a good chance the valuations of the underlying businesses may be depressed.
I’d invest with a long-term horizon in mind aimed at capturing upside potential from recovery and ongoing growth. However, a positive outcome isn’t certain even though share prices are lower now than they were. All shares carry risks as well the potential for gains. But I’m inclined to embrace the risks in the pursuit of long-term gains.
For example, I’m ready to pounce on dividend-paying stocks such as global information services company Experian. And I like the look of fast-moving consumer goods companies Reckitt and British American Tobacco. However, I wouldn’t buy any stock without first undertaking my own thorough research.