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£500 to invest? I’d buy the FTSE 100 in 2020

The FTSE 100 chalked up a fantastic performance last year. The index ended 2019 with a total gain of 12.1%, one of its best since the financial crisis. Indeed, since its inception, the lead index has returned around 7% per annum, so last year’s performance is well above the long-term average. 

Following this performance, it’s easy to jump to the conclusion that the index is overbought. But it doesn’t look as if that’s the case. There are still plenty of companies in the FTSE 100 that appear to offer value at current levels.

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And with this being the case, it seems as if the UK’s leading blue-chip index still looks like an attractive investment for 2020. 

International exposure

One of the great things about the FTSE 100 compared to other UK stock index is its international exposure. Around 70% of its profits come from outside the UK.

This means the lead index has plenty of international diversification, so it’s unlikely to be significantly impacted by Brexit, whatever the outcome of the UK’s divorce negotiations.

Instead, it’s more exposed to global economic growth, which could pick up in 2020. Some encouraging signs are already starting to show. The world’s two largest economies, the United States and China, seem to have reached a tentative trade deal, bringing an end to the trade war that has dominated headlines for the past two years. 

By settling their differences, this agreement should only benefit an already robust global economy. Unemployment has plunged over the past few years and wage growth has returned, which should lead to increased consumer spending.

Countries around the world are also committing money to big infrastructure projects. That should benefit the mining sector in general, which makes up a significant percentage of the FTSE 100. 

Easy to buy

So the fundamentals for the global economy are improving, and the main index is one of the best ways to gain exposure to the economic recovery. Furthermore, it’s relatively straightforward to invest in it. 

Most online stock brokers now offer regular monthly investment plans, allowing investors to contribute as little as £50 a month. Most fund managers also offer low-cost FTSE 100 tracker funds. Therefore, it’s quite easy to buy into it regularly. 

A lump sum investment of £500 is more than enough to get started. The index currently supports a dividend yield of 4.3%. This would give an estimated £21.50 of income on an initial investment of £500.

With additional monthly contributions of £50, this could quickly become a sizeable nest egg. After 10 years, it’s possible to build a savings pot worth £10,000, giving a potential annual passive income stream of £430. That’s assuming the money is invested in an FTSE 100 tracker fund.

The bottom line

So that’s where I’d invest £500 in 2020. Even though the index produced an above-average return in 2019, it seems as if investors will be well rewarded this year as well.

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Rupert Hargreaves owns no share 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.