With only one full trading day to go until the result of the UK’s EU referendum is known, it looks as if investors are rushing to place their bets ahead of what’s tipped to be one of the most important days in the financial world since the collapse of Lehman Brothers.
It’s being reported that some hedge funds are taking cash off the table ahead of Thursday’s vote, as they look to safeguard assets, while others have been reported to be making huge bets against the UK market and sterling.
Of course, it’s impossible to predict how the markets will react to the results of the voting, but it’s reasonable to suggest that volatility will prevail in the days, weeks or even months following the vote, no matter what the outcome.
But even though it’s unclear what Thursday will bring for the UK, I’m still buying the FTSE 100 and will continue to do so, no matter what the outcome of the vote.
A global income index
The FTSE 100 is a truly global index. More than two-thirds of the index’s profits come from outside the UK, so it’s arguable that the index won’t be affected by Brexit. However, some of the FTSE 100’s largest constituents are banks, which will feel the impact of a Brexit. What’s more, if the UK does decide to leave the EU it could ignite a wider European crisis, which could even spiral into a world crisis as the global economy is currently in a fragile state.
A global economic slump would hurt the FTSE 100 yet despite this risk the index is still attractive to me. You see, one of the index’s most inviting qualities is its leading dividend yield. At present, the FTSE 100 as a whole supports a dividend yield of 4%, which is better than the payout on offer at many blue-chip firms.
And by buying the FTSE 100 as a whole, this yield is available from a well-diversified portfolio of stocks, thereby minimizing risk and maximizing the yield. A low-cost tracker fund or ETF will help you achieve this strategy with minimal effort.
Set to fall
If the UK votes to leave the EU on June 23, it’s reasonable to assume that the FTSE 100 will fall, how far it falls it’s not possible to tell but for income seekers this will present an opportunity. By using a tactic called pound cost averaging you can increase your exposure to the index over a period to achieve the best yield for your money.
Pound cost averaging means buying the FTSE 100 on a regular schedule, over an extended period. During times of volatility, this strategy is generally by far the best way of investing as more shares are purchased when prices are low, and fewer shares are bought when prices are high.
The bottom line
Overall, if you’re looking for a well-diversified global income fund, the FTSE 100 is an excellent proxy for this type of investment. When combined with pound cost averaging, an investment in the FTSE 100 should produce impressive returns for your portfolio no matter what the result of the EU referendum.
