If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he’d invested in a FTSE tracker fund during the Covid crisis, but flags up a key point.

| More on:

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.

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

During the first quarter of 2020, Covid-19 was starting to get serious. The escalations related to pandemic lockdowns caused a stock market crash during February and March that year. At that time, the extent of the drop caused some long-term investors to snap up FTSE stocks. So if I had done the same in April 2020, here’s what I’d have now.

Assessing the return

I’m going to assume that I invested £5k in the iShares Core FTSE 100 (LSE:ISF) at the start of April 2020. The index tracker is the largest in the UK, with net assets of £11.2bn.

In the period between then and now, the tracker fund’s up 75%! So my £5k would currently be worth £8,750. This is in a period of around four and a half years, so even if I split the return up into an approximate annual figure, it’s easily in the double digits. Over the past year, the stock’s up 15%.

Should you invest £1,000 in Coca-Cola HBC right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Coca-Cola HBC made the list?

See the 6 stocks

The fund tries to mimic the performance of the FTSE 100 benchmark. The largest stocks by market cap in the index will therefore be allocated the most money in the fund. Further, it currently has 100 holdings (which makes sense) and has a beta of 1. Beta’s a measure of sensitivity of a stock or fund movements in response to the index (in this case the FTSE 100). So as I’d expect, the beta of 1 means the fund moves perfectly in tandem with the FTSE 100.

Created with Highcharts 11.4.3iShares Public - iShares Core Ftse 100 Ucits ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The other side of the coin

My unrealised profit from buying the tracker fund looks juicy. Yet there are arguments both for and against making this move. On the one hand, the fund provides me with complete diversification. During the market crash, it could have been difficult to figure out which specific stocks to buy. So buying the tracker to replicate the whole index was a safer choice.

However, my returns could have been larger if I’d been an active stock picker. For example, I could have seen how beaten down the Rolls-Royce share price was, as the civil aerospace division struggled to generate business. If I had purchased just Rolls-Royce shares in April 2020, I’d be up over 600%!

This might be an extreme example, but when I look at other stocks that are in the leisure, travel, tourism and similar sectors, there are plenty of other cases of large gains. Granted, these would have been higher risk investments at the time. But I still could have diversified some of my risk via holding a range of ideas from these different sectors. Also, the companies in question are large-cap names, so we’re not talking about small firms.

My key takeaways

The gains from the tracker show that over time, the stock market does recover from a crash. It highlights to me that even though it serves a good purpose, I’m not going to invest now in the iShares Core FTSE 100. Rather, I’m going to continue buying specific stocks that I think can outperform the index in general.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. 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 best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing For Beginners

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 shares to consider for an ISA before 5 April!

These FTSE 100 and FTSE 250 shares are on sale today! Here's why long-term Stocks and Shares ISA investors should…

Read more »

Investing Articles

How I’m building a new second income for 2035

Millions of us invest for a second income. Here are the steps Dr James Fox is taking in order to…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Investing Articles

3 top FTSE 100 shares to consider for a new ISA

The FTSE 100 is packed with top-notch companies that can form the building blocks of a quality Stocks and Shares…

Read more »

Investing Articles

Is buying gold stocks the best way to capitalise on bullion’s bull run?

Forget about gold bars, coins, and funds for a moment. Here's why considering gold stocks could be the best option…

Read more »

Investing For Beginners

Want to invest in an ISA but scared of a stock market crash? Consider this

A stock market crash or dip can be a great time to buy FTSE 100 stocks at reduced prices. Harvey…

Read more »

Investing Articles

1 crucial thing to do as the 2024/25 ISA deadline approaches

This time of year is a great time to check your ISA strategy and make sure you’re positioned for long-term…

Read more »