The Motley Fool

3 ways I’m trying to beat the FTSE 100 this year

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

macro shot of computer monitor with FTSE 100 stock market data in trading application
Image source: Getty Images

As an active investor, I want to beat the performance of the FTSE 100. Why? Well, the FTSE 100 index is the general benchmark used when trying to measure the performance of the stock market in the UK. There are other measures that I could use to compare my performance against. I could try and beat the rate of inflation, the rate of interest on a Cash ISA, or other comparatives. Yet I think the FTSE 100 is the best and most relevant metric to use. Here are a few ways I’m trying to beat it this year.

Investing regularly

The first method I’m using is trying to invest regular amounts throughout the year. This way, I can be selective and try to use my funds for that period to buy on any potential dips. For example, in July we saw a drop of almost 300 points over the course of a few days in the FTSE 100. So I could have bought at this lower level for my July allocation.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Obviously, it’s impossible to always buy at the bottom of each dip, but as long as I’m trying to avoid buying at the very top, this should help me to beat the FTSE 100 performance over a longer period. This is because on average, my buying price will be lower than the average FTSE 100 price during the year. 

This method assumes that I buy a FTSE 100 tracker each time, to try and replicate the overall index. If I want to be more active with my stock selection, my second method would suit me better.

Buying selective FTSE 100 stocks

The second way I’m considering is to buy a selection of FTSE 100 stocks. The index reflects the price of all the constituents, so if I can remove the shares I think will underperform and invest more in those I think will outperform, I could beat the index. 

It’s less about cutting out entire sectors from my portfolio, but rather being selective in the stocks I pick from each sector. For example, within the banking space, I’d prefer to own NatWest over HSBC. I feel the position in the market that NatWest has in the UK, along with its more streamlined business model, should allow it to outperform HSBC.

The risk of this method is that I will be more concentrated in my holdings. I might hold a dozen stocks or so, versus holding the entire index. So if there are a few stocks that see a large share price gain that I’m not holding, I could start to lose ground on the index over the year.

Boosting returns

The final method I’m trying is to factor in dividend income. My overall return over the course of the year isn’t just from share price gains or losses, but also from the income I’ve received. The average FTSE 100 dividend yield is currently around 3%. So if I can be selective and own stocks with yields in excess of 3%, this can provide another boost when I tot up my returns at the end of the year.

Regardless of whether it’s via dividend income, buying on dips or being selective in my stock picks, I can try and beat the FTSE 100 over time.

Our #1 North American Stock For The ‘New-Age Space Race’

Billionaires like Jeff Bezos, Bill Gates, Elon Musk, and Mark Zuckerberg are already betting big money on the ‘new-age space race’, and for one very good reason…

…because this is an industry that according to Morgan Stanley could be worth $1 TRILLION by 2040.

But the problem is most of their investments are in private companies — meaning they’re largely off-limits for everyday investors.

Fortunately, our team of analysts have identified one little-known company that’s at the cutting-edge of the space industry, and is currently trading at what looks like a VERY reasonable valuation

for now.

That’s why I want to urge you to check out our premium research on this top North American space stock ASAP.

Simply click here to see find out how you can grab your copy today

jonathansmith1 has no position in any share mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.