It’s fair to say that the UK’s FTSE 100 index has lost its momentum recently. After rising to near 11,000 in late February, it has plummeted amid geopolitical instability, surging oil prices, and talk of higher interest rates.
Here, I’m going to reveal how much £10,000 invested in a Footsie index tracker at the start of March would now be worth. Let’s crunch the numbers.
The index has tanked
There are a number of FTSE 100 tracker products available today. I’m going to focus on the iShares Core FTSE 100 UCITS ETF (acc) (LSE: CUKX).
I’ve chosen this one because it’s quite popular with UK investors. It also reinvests all dividends from Footsie companies meaning that share price performance gives us an idea of total returns (gains plus dividends).
Now, this ETF ended February at a price of 22,040p. So, let’s say an investor was able to buy at that price and they invested £10,000 in it.
Today – roughly three weeks later – that £10,000 would be worth about £9,140 (almost 9% less). Because as I wrote this on Friday (20 March) afternoon, the ETF’s share price is 20,135p.
The takeaways
Now, I’m not saying that this is a bad product (it’s a solid product that could be worth considering for a portfolio). Volatility like this is part of investing.
But there are a few key takeaways from these numbers. One is that a simple index tracker which is only focused on one geographic market like this doesn’t guarantee portfolio success.
By including a range of different ETFs and/or individual stocks in a portfolio, investors could have potentially obtained better returns. I’ll point out that one of my favourite ETFs, the HANetf Future of Defence ETF (another product worth considering) is actually up for the month so this could have provided some portfolio protection.
Another takeaway is that it can pay to drip feed money into the market slowly. Had the investor put £3,000 into the Footsie tracker fund at the start of the month instead of £10,000, they could potentially put another £3,000 in today at much lower prices and then another £4,000 at a later date, smoothing out their entry prices (I’m assuming here that they weren’t putting £10,000 into the market regularly).
What’s next for the FTSE 100?
Will the FTSE 100 bounce back? I think so – history shows that it’s able to recover from turbulence like this.
However, at this stage, it’s hard to know if we’ll see a ‘V-shaped’ recovery. If the Middle East conflict drags on and oil prices remain elevated, the index could remain under pressure (high oil prices tend to hurt economic growth).
So, I think the key is to remain diversified and think long term (and potentially consider buying opportunities). If you’re looking for ETF and stock ideas for portfolio diversification, you can find plenty of information right here at The Motley Fool.
