With the US stock market turning volatile, the FTSE 100‘s proving to be an attractive destination for investors seeking stability. After all, the UK’s flagship index has a reputation for weathering storms. Year-to-date, the FTSE 100 is beating the S&P 500 by around 8%. And during the 2022 market correction, the index was ahead by almost 20%!
With that in mind, let’s take a look at how much money investors could expect to make if they put £5,000 to work in an index tracker.
Passively building wealth
Thanks to the invention of low-cost index ETFs, investors can easily replicate the FTSE 100 and follow in its footsteps. And over the last five years, this passive investing strategy has yielded a total return of 75.8%, or 11.9% on an annualised basis.
Considering that the long-term average of this index usually has around an 8% gain a year, it perfectly demonstrates the advantage of buying shares during periods of volatility. As a reminder, five years ago today, we were in the middle of the Covid-19 stock market crash.
If the FTSE 100 maintains its current pace, a £5,000 investment today could be worth up to £5,597.23 over the next 12 months. Yet, looking at the latest predictions from The Economy Forecast Agency, growth could be even stronger, with an 11.6% capital gain paired with a 3.5% dividend yield. Under this scenario, investing £5,000 right now could grow to £5,755.
Boosting returns
The prospect of earning nearly double the average stock market return over the next 12 months is quite thrilling. However, it’s important to always take forecasts with a grain of salt. The FTSE 100 has faired well lately, but there’s no guarantee it will continue to do so. And a lot of its constituents are international giants likely being impacted by the brewing trade wars with the US.
As such, seeking such gains might be unrealistic. But perhaps not for stock pickers. Not every FTSE 100 stock is on a roll right now, with companies like Ashtead Group (LSE:AHT) down by double digits over the last six months. However, as previously highlighted, buying when prices are falling can be immensely rewarding in the long run. So are these buying opportunities?
Taking a closer look at Ashtead, the equipment rental enterprise has taken a hit on the back of a guidance cut in its half-year results. Skip ahead to March this year, and its third-quarter trading update revealed the damage, with revenue taking a 3% hit and operating profits down 7%.
A softer construction market, due to prolonged elevated interest rates, has damped demand for Ashtead’s equipment. And with economic uncertainty brewing in Ashtead’s core American market, there are concerns that growth may remain elusive for a little while longer.
Yet management remains focused on the long term, and has already reported that early signs of recovery have started to emerge now that interest rates have stabilised. That’s probably why the company’s in the middle of executing a $1.5bn share buyback programme to capitalise on its falling share price.
Assuming the rebound emerges, analysts are predicting the Ashtead share price to rise by an average of 36% over the next 12 months. As usual, there’s no guarantee. But this is one to consider and such a gain could transform a £5,000 investment into £6,825.
