It was in May 2017 that Britain’s benchmark index closed over 7,500 for the first time. Since then, the FTSE 100 has traded between about 6,700 and 7,800. Now it is flirting with 7,600. And I expect the index break through the 8,000-point barrier for the first time by the end of 2020. Therefore, I’d like to encourage our readers to start learning more about how to invest in FTSE 100 shares.
FTSE 100 returns
The FTSE 100 seems to be the initial index Britons mostly consider when they first start investing. The group comprises the 100 most capitalised blue-chip companies listed on the London Stock Exchange (LSE). The index also has quite a number of companies that are listed in the US and other stock exchange markets. It is the leading share index in Europe.
The UK has a healthy economy. However, Brexit has dominated our lives for over three years and left the economy with many question marks. The final weeks of 2019 also saw general election uncertainty.
In addition, investors have been concerned about US-China trade wars, economic slowdown, interest rates, and commodity prices.
Nonetheless, 2019 was a year of robust investment returns for many asset classes, including the FTSE 100. Indeed, it was up about 12%. I’d call that a sparkling year.
In addition, the average dividend yield for the FTSE 100 is about 4.5% a year. Dividend payments make up a crucial part of an investment’s total return. If we were to look at total returns over a much a longer duration, then the average annual return would likely be about 7%-9%.
What can we expect in 2020
In 2020, I expect risk appetite to pick up amid hopes of progress on a post-Brexit trade deal with the European Union as well as a trade war truce between the US and China. Therefore, given the current level of the FTSE 100 index, I’m quite hopeful that we will hit 8,000 at some point in 2020.
Most central banks are likely to remain supportive and maintain the current era of low interest rates – a factor that would bode well for equity markets.
Mergers and acquisitions may continue in the UK as several mid-cap companies may be subject to fresh overseas interest.
On a global note, 2020 is the year of the US presidential election. Therefore global markets are likely to get choppy as election day draws closer in November.
FTSE 100 investment options
The index comprises quite a diverse number of sectors including consumer staples, energy, financials, healthcare, property, mining, telecom, and utilities. Several of the top listings by market cap include:
Royal Dutch Shell (oil), dividend yield of 6.3%
HSBC Holdings (banking) dividend yield of 6.7%
Unilever (consumer goods), dividend yield of 6.7%
BP (oil), dividend yield of 6.3%
AstraZeneca (healthcare), dividend yield of 2.8%
BHP Group (mining), dividend yield of 5.7%
GlaxoSmithKline (healthcare), dividend yield of 4.4%
British American Tobacco (tobacco), dividend yield of 5.8%
Diageo (beverages), dividend yield of 2.1%
Rio Tinto (mining), dividend yield of 5.7%
Equity investing involves some level of risk and there’s no guarantee as to how any of these stocks will perform in 2020. However, if you are looking for investing ideas, then they may be worth further due diligence. They all have characteristics that may make them appropriate for most portfolios.
All 10 companies offer regular cash payments to shareholders in the form of a dividend, are global businesses with large market caps and come from a wide range of sectors.
tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, Diageo, and HSBC Holdings. 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.