If you’ve watched or read anything about the stock market, you’ve probably heard of the FTSE 100 index. But how do you invest in the FTSE 100? Here’s what you need to know.
Ways to invest in the FTSE 100
There are two ways you can invest in the FTSE 100. Firstly, you can invest directly in one company, or a handful of companies, that make up the FTSE 100. To do this, you can open a share dealing account and then buy individual investments through a platform. Alternatively, if you want to invest in the whole FTSE 100, then you can do this using an index tracker fund.
The best option for you will depend on your personal circumstances.
1. Trading the FTSE 100
Trading the FTSE 100 essentially means buying the individual stocks directly. You can buy individual stocks from the index using a brokerage or share-dealing platform.
You can buy one share of each company to create your own portfolio of FTSE 100 stocks, or buy shares in select companies, depending on your chosen strategy.
2. Investing in the FTSE 100
You can’t invest in the FTSE 100 directly, but you can invest in an index fund or exchange-traded fund (ETF).
This can be a good option if you want exposure to all of the companies in the index without having to buy individual shares. These funds and ETFs track the performance of the stocks in the FTSE 100.
What to look out for before investing in the FTSE 100
As the FTSE 100 contains the top 100 performing companies in the UK, it is obviously UK-focused. This isn’t necessarily a problem, but it does mean you are heavily relying on the performance of the UK economy if you decide to invest solely in the FTSE 100.
Many investors recommend holding shares across a number of different countries in order to diversify your portfolio and reduce your risk.
Diversifying protects you if the UK economy slumps more than the rest of the world’s economies. Your portfolio won’t be as impacted as it would if you only invest in FTSE 100 companies.
It’s also worth knowing that a FTSE 100 tracker fund won’t contain any bonds. Again, this isn’t necessarily a problem, but you should be aware that if you do choose to invest solely in the FTSE 100, you won’t have any bonds to protect you from any unexpected volatility.
Bonds can offer you a cushion because traditionally they are more stable than shares, at least in the short term. However, it’s worth noting that bonds generally offer lower returns.
More generally, if you are new to investing, it’s important to understand that investing involves risk and that the value of your investments can go down as well as up. Check out our beginners’ guide to investing for some helpful guidance.
How to invest in the FTSE 100
If you’re ready to get started, here’s how you can invest.
1. Choose how you want to invest
As you know, you can’t invest directly in the FTSE 100 unless you decide to buy shares in each of the companies in the index.
Instead, you can get exposure to the index by investing in an exchange-traded fund (ETF) that tracks the performance of the stocks in the FTSE 100.
2. Decide how much you want to invest
Once you’ve decided how you want to invest in the FTSE 100, you’ll need to decide how much you want to invest. You can either invest a lump sum or a certain amount each month.
3. Open an investing account
Next, you’ll need to open an investing account. You can either do this yourself online or employ a broker to do some of the work for you.
4. Start investing
Once you’ve got everything set up, you’re ready to start investing in the FTSE 100 – either through individual stocks or an ETF.
Check out our list of the top trading platforms in the UK to start investing today!