For many people, the idea of investing in the stock market conjures up images of considerable effort being required in order to try and buy low and sell high.
While this may be the experience of some investors, the reality is that there are a number of investment strategies that do not require intensive effort.
Likewise, it is relatively straightforward to buy a varied range of companies that offer impressive income returns, as well as exposure to differing geographies.
One such strategy is buying and holding FTSE 100 dividend shares for the long run. Here’s why that could prove to be an effective means of investing in the stock market for many private investors.
While some investors may wish to try and time their share purchases so that they invest at the depths of bear markets and sell at the top of bull markets, for most people a simpler and less demanding buy-and-hold strategy could be more appealing.
Proponents of it include Warren Buffett, who has a favoured holding period of ‘forever’. Indeed, by allowing a company’s management team the time it requires to deliver on its strategy, and for the competitive advantages enjoyed by specific businesses to impact on the financial performance, it may be possible to generate high returns over the long run.
Furthermore, with the impact of compounding factored in, even relatively average returns offered by the FTSE 100 could make a significant impact on many investors’ long-term financial prospects.
While generating an income from assets such as bonds, cash and property is likely to remain tough in the medium term, the FTSE 100 offers a dividend yield of 4.5% at the present time. This is likely to be higher than other mainstream asset classes – especially when the tax advantages of investing through a Stocks and Shares ISA are factored in.
In fact, with the index having a number of stocks that have higher yields, it may be possible to build a portfolio with an income return that is in excess of 4.5%. In doing so, an investor may reduce the need to generate capital growth, since the income returns may equate to impressive total returns all on their own.
In the long run, dividend growth may mean that a buy-and-hold strategy is the best way to benefit from the FTSE 100’s generous yield.
While the world is becoming increasingly interconnected, challenges can be higher for one region over another. For example, Brexit may be causing business and consumer confidence in the UK to be weaker than it otherwise would be at the present time.
Since the FTSE 100 generates the majority of its revenue from outside of the UK in a range of markets, it offers a significant amount of diversity. With economies such as India and China having bright future growth prospects, ensuring continued exposure to them through the FTSE 100 could provide a boost to an investor’s financial prospects.
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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.