Is The FTSE 100 Finally Set To Reach 7,000?

The FTSE 100 has touched 6,877.5 points today, taking it to its highest for four and a half months. And that’s just 73.1 points short of its all-time high set on the very last trading day of 1999!

More than 15 years on, is the UK’s index of top stocks finally going to break through the 7,000 barrier?

Shares recovering

Well, sentiment does seem to be improving as the UK’s economic recovery gains momentum, and some of our hardest hit blue-chip stocks are starting to attract investors’ attention once again. Tesco shares, for example, hit rock bottom at just 155.4p on 8 December, but since then the price has recovered 50% to today’s 234p.

Beleagured BP investors have seen something similar too, with their shares up 23% over a similar period to 450p, despite cheap oil. And even the big miners are clawing something back since the doom-laden end to 2014.

Meanwhile, safe income shares like National Grid and staples like Unilever are soaring.

There will be some eyes on the upcoming bribery season — sorry, I mean the general election. This one could be a very close run thing, and the major parties will surely be offering up tempting promises aimed at further boosting consumer and investor optimism — very few ever expect politicians to come good on their election promises, but for some reason they seem to work pretty well every time.

What about Europe?

The downside, of course, is that a fresh round of euro crises could plunge the eurozone back into recession just as it’s pulling out of the last one. In the long run, I reckon the demise of that badly flawed economic experiment would be to the greater good, but in the shorter term it would prove painful.

Should the Greek-German confrontation continue for long, cash will surely start to be withdrawn from European stock markets and invested elsewhere — and if that happens, we’ll most likely see a run on the FTSE again. Oh, and there’s a Spanish election coming up in November.

So what should investors do? Well, you  might think that investing in shares over the past 15 years has been a losing game — but you’d be wrong. You see, although the FTSE is still slightly down on its 1999 peak, dividends have turned shares into a better long-term investment than cash in a savings account.

Beating the banks

You’d have taken home an average of around 3% per year in dividend cash, and if you’d reinvested it you’d have done even better — due to pound-cost-averaging, you’d have bought more shares when they were cheaper during the worst of the slump, and you’d have some capital appreciation to add from the subsequent recovery.

And as for 7,000, well, it’s just a meaningless number really — but breaking through it could be the emotional event that would trigger an even higher climb.

Solid dividends, reinvested every year, are a cornerstone of a simple approach to investing which could lead you to handsome rewards.

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