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3 reasons why I think the FTSE 100 could help you build a £1m ISA

While building a £1m ISA account is never going to be easy, the FTSE 100 could provide a tailwind over the long run. Certainly, the index has performed well so far in 2019. It has risen by around 11% since the start of the year, but yet it still seems to offer good value for money. Alongside this, it appears to have growth potential, while its international focus could also help investors to build a seven-figure ISA portfolio over the long run.

Growth potential

A number of sectors within the FTSE 100 appear to have bright long-term futures. For example, the healthcare industry could benefit from an ageing global population. Similarly, consumer goods companies may offer rising bottom lines as wages and wealth growth in emerging economies lead to higher demand for their products.

Meanwhile, FTSE 100 housebuilders may be able to benefit from continued high demand for new homes across the UK. Real Estate Investment Trusts (REITs) may offer high returns post-Brexit, while FTSE 100 retailers appear to have stronger growth prospects than the stock market may be pricing in.

Therefore, while the index has performed well, it’s not difficult to find stocks with impressive earnings growth outlooks. They could provide the index, and investors, with a catalyst over the coming years.

Valuation

While an 11% rise in the FTSE 100 in less than four months may normally suggest the index is due a pullback, its 4%+ dividend yield indicates it continues to offer good value for money. Such was its fall in the second half of 2018 that the FTSE 100 appears to offer a wide margin of safety. It could even rise by a further 11% in the short run and still not be overvalued.

In fact, when compared to other major global indexes such as the S&P 500, the FTSE 100 appears to be very cheap. It has a dividend yield of around twice that of the S&P 500, which indicates it could rise significantly and still offer better value for money than its international peer.

International opportunities

At a time when many investors are concerned about the UK’s economic future, the FTSE 100 could offer investment appeal. It generates the majority of its income from outside of the UK, which means it may be impacted to a lesser degree than expected by any potential fallout from the Brexit process.

In fact, should investors become increasingly concerned about Brexit in the short run, a weaker pound may benefit many of the index’s constituents. They may experience a positive currency translation should they report in sterling but trade internationally. This could lead to higher earnings, as well as higher valuations.

At a time when the index appears to offer growth potential and good value for money, its diverse exposure could be an additional reason why it may have a positive impact on investors’ portfolios. In the long run it could even help an ISA to reach seven-figure status.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.