My FTSE 100 index tracker investment is proving to be a bastion of strength in my diversified investment portfolio.
I’m running a mixed strategy with a big emphasis on growth and individual stock picking remains my main focus. But a few years ago, by luck or judgement, I had the presence of mind to set up regular payments into several tracker funds.
Automation and diversification
My thinking was that it would be a good idea to diversify away from my own stock picking. And that’s because, like everyone, I’m hurtling towards retirement at breakneck speed. And on top of that, I wanted a portion of my portfolio to take care of itself. Indeed, in life, we never know what’s going to happen next to take us away from the markets for a while.
So, I was keen to ensure that a potential run of poor or non-existent stock-picking along my investing journey wouldn’t take down my entire retirement fund.
And I’m glad to have made the partial move into trackers. Readers probably don’t need me point out that the past few years have been challenging for both businesses and investors. But through the whole period I’ve been consistently paying monthly sums of money into my trackers. And that includes one following the Footsie.
In fact, the entire process is automatic. Money transfers into the funds every month since I set it all up. I can go and get lost in the mountains for six months to recharge my batteries and my investee trackers wouldn’t notice the difference!
And because I’m still in the building stage of my portfolio, all my trackers are set to ‘accumulation’. In other words, the dividends they produce are automatically rolled back into my investments without me even having to do anything.
A strong dividend record
Now, with the FTSE 100, the dividends are worth having. Right now, the index is yielding something like 3.5%. And sometimes it’s been either a little higher or a bit lower than that figure. But as far as I know, it’s never been zero in its entire history.
So, over time, reinvesting the dividends can really bolster the process of compounding the gains from my tracker investment. And that’s exactly what’s been happening.
The index has been volatile over the past few years. But my monthly investments kept going in. And when the index was down, I could argue that I got more for my money. Indeed, now the Footsie is riding high again, those lowly investments and the reinvested dividends have bolstered the returns. And now my tracker shows a robust overall profit in my portfolio.
I’m bullish about the prospects for the FTSE 100 over all timescales from where it is now. But if the outlook was more uncertain in my eyes, I’d still want to keep up my regular investments. And that’s because the income from dividends can potentially help to save the day, however volatile the markets.
Even Footsie trackers can’t guarantee a positive long-term investment outcome. All share-based investments carry risks as well as a chance for gains. But I’d say to myself, don’t ignore the dividend potential of the FTSE 100 index!
