Is Now The Right Time To Buy The FTSE 100?

On 30 December 1999, with the millennial celebrations reaching their height and the stock market in the raging tech bull market that marked the end of the last century, the FTSE 100 nearly touched 7000 points (it closed on 6930 that day).

Fast forward to today, and the FTSE 100 stands at 6654. After so many years of peaks and troughs — through the tech crunch, the credit crunch and the Eurozone crisis — the stock market has never breached the highs of 1999.

FTSE 100 trackers have just been treading water

If you had bought a FTSE 100 tracker at the turn of the century, your investment would have made no money at all.

If you had saved your money in a run-of-the-mill bank or building society savings account, even with the record low interest rates we have had since the financial crisis, you would have beaten the return of a tracker.

So clearly a FTSE 100 tracker is a terrible investment, right? There seems to be no clear reason why anyone would buy a tracker, when the returns are so woeful, and you are as likely to lose money as make money.

Have you spotted the mistake I’m making?

This is a classic piece of penultimate thinking: thinking that what has happened during the past few years will be what happens in the future. In actual fact, you need to see this trend in the context of the bigger picture, and of stock market patterns over many decades. Older and wiser heads will know that if you have seen this trend over so many years, the opposite is likely to happen in the future.

Now is the time to buy!

It’s no surprise that one particularly old and wise head, Warren Buffett, has just advised his wife to put her retirement fund in an index tracker. Coincidentally, I’ve started investing some of my wife’s savings. The next chunk of money she gives me I plan to invest in a FTSE 100 tracker. I plan to invest some of my cash in a tracker, too.

From my point of view this is the perfect time — if you are a long-term investor, and especially if you’re not particularly bothered about P/E ratios, dividend yields and the like — to invest in a FTSE 100 tracker. The main reason is because I think the FTSE 100 will be rising in future years, rather than treading water.

And if you’ve made up your mind to buy a FTSE 100 tracker, which would you pick? Well, there are now many FTSE 100 trackers with low, low charges. Among the cheapest are the Vanguard FTSE 100 ETF (LSE: VUKE), the HSBC FTSE 100 Index, and the Legal & General UK 100.

I think that investing in a FTSE 100 tracker with minimal charges can be a key component of an investor's toolkit, and can help pave the path to future wealth. If you are an investor who dreams of building that retirement nest egg, we at the Fool have written a free guide that gives seven steps to achieving serious wealth.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.