The FTSE 100 index of leading companies contains some of the top names in British business, like Shell and Unilever.
That might not seem like a ticket for growth. After all, mature companies often find it harder to grow their business than smaller, nimbler upstarts.
In fact, though, it has been an excellent 12 months for the index.
Strong price growth
It has repeatedly hit a new all-time high in recent months – including a new peak yesterday (3 March).
So, what would an investor now be sitting on if they had invested £10k into the FTSE 100 a year ago?
It has moved up 14.9% during that period. So, a £10k investment should now be worth around £11,490. Not bad!
3.4% dividend yield from leading blue-chip shares
The index also yields roughly 3.4% at the moment.
If someone had bought a year ago at the lower price, the yield would be accordingly higher. So, they would now be yielding somewhere in the region of 3.9%.
So over the past year that would have added up to close to £400 of dividends on a £10k investment.
Taken together, £10k invested a year ago would now be worth almost £11,900.
Here’s one way to invest in the FTSE 100
Buying shares in 100 different companies could be time-consuming as well as requiring significant capital, let alone incurring lots of trading fees.
That explains why a lot of investors buy shares in funds that track the FTSE 100 index.
There are lots of options available and some have more attractive cost structures than others, so it can pay to do some research and compare the choices.
Here’s why I’m not buying a FTSE 100 tracker right now
Personally, I do not own such shares and currently have no plans to.
What works for different investors varies based on their own circumstances, objectives, and approach. Rather than investing in a tracker fund, I prefer to buy individual shares.
For example, one FTSE 100 share I have been buying is JD Sports (LSE: JD).
Over the past year, £10k invested in the retailer would have shrunk to under £6,700 even including dividends – a far cry from the overall FTSE 100 performance, alas.
But I have seen that share price tumble as a buying opportunity for my portfolio.
I prefer buying individual shares to an index as it means I can put my money into what I think are great businesses not just whatever ones make it into the index. JD Sports has issued a few profit warnings over the past year, but I still see it as a great business.
Why?
It has a large customer base that has proven willing to shell out on costly sportswear. The company understands its target customers well, it has a strong brand, and an expansion plan that means not only does it have global reach, but that is set to keep growing.
The price fall points to some of the risks, such as a weak economy hurting consumer spending and the shop estate expansion programme eating into short-term profits.
As a long-term investor, though, I reckon the current price is well below what I expect JD Sports to be worth in future. That is why I have been buying the shares.
