The Motley Fool

Investing your first £1k? I’d buy the FTSE 100 index during the stock market crash

Image source: Getty Images

You’d have to be living under a rock to be oblivious to the mayhem in financial markets at the moment. Global stocks have plummeted as a result of the outbreak of Covid-19. So far, the FTSE 100 index has shed around 27% of its value.

It may seem like the wrong time to be new to the world of investing. But rest assured, I think now could be one of the best times to invest for the next 5 to 10 years!

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

If you’re about to take the plunge and make your first investment, you couldn’t have picked a better time. 

This is because many stocks within the UK’s premiership stock market index are trading on cheap valuations. For savvy investors, it’s the perfect time to grab a bargain.

However, with an overwhelming selection of stocks, funds, and ETFs out there, you may be wondering where to start.

Tracker funds

The debate over whether tracker funds are better investments than individual stocks is heated. Let’s take a brief look at both sides:

Index tracker funds have surged in popularity over recent years. They’re loved for their simplicity and accuracy.

When you invest in an index fund (e.g., a FTSE 100 tracker fund), you essentially buy the entire index. This provides instant diversification across a range of sectors and industries.

Individual shares

Owning a portfolio of individual stocks is often seen as the conventional approach to investing. It allows for greater freedom of choice over investments, adding a bit more excitement.

It’s perfectly possible to be as diversified when owning individual shares as you would be owning a tracker fund, but it requires more money, as well as more time and effort.

The verdict

Personally, I’d always recommend experienced investors to construct a portfolio of 10 to 20 good quality, diversified individual stocks. That way, you can have a good shot at outperforming the index and receiving greater returns.

However, for inexperienced investors or those with little time on their hands, a FTSE 100 tracker fund is a solid choice. What’s more, it’s not necessarily an inferior strategy to investing in individual stocks.

Juicy dividends

Regardless of where you invest that first £1,000, it’s important to hold investments for the long term. Bumper returns rarely come overnight.

The FTSE 100 is renowned for its juicy dividend yield, averaging just under 5%. This means that for a £1,000 investment, you’d receive £50 in dividends each year. Re-investing those dividends back into the tracker fund speeds up the compounding process.

On top of this, investing over the long term allows you to ride out the highs and lows of the market without taking a huge hit to your portfolio. Short-term losses shouldn’t affect you if you’re in it for the long term.

The FTSE 100 is on offer

The FTSE 100 hasn’t been valued this low since 2012. There are vast amounts of quality stocks trading on dirt-cheap valuations at the moment. Think Aviva, Unilever, Lloyds, and Tesco just to name a few.

A tracker fund eliminates the need to accumulate broker fees, make tough decisions, and saves time over choosing individual stocks.

Ultimately, the FTSE 100 is usually an indicator of the health of the UK economy. So, if like me you’re bullish about long-term economic growth, a FTSE 100 tracker fund should be a strong buy.

So don’t waste the stock market crash. Invest that first £1,000 for the long term and look forward to attractive returns in the future.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.