The FTSE 100 has had a great week, rising well above where it was just a few weeks ago. Hopes around treatments for Covid-19 coupled with the lifting of restrictions globally, have fuelled investor optimism. That’s despite the short-term pain likely to be felt by higher unemployment and business failures.
FTSE 100 shares
With share prices still far below where they started the year, it’s not too late for investors to catch further gains. There’s a risk, however, of a second spike of Covid-19, which investors should be wary of. History shows there’s a risk of a double-dip.
Nonetheless, for a long-term investor, the FTSE 100 has great companies trading at cheap valuations. In an age of negative interest rates, options for making your money grow are becoming harder to come by. Furthermore, the risk of a double-dip in the short-term is far from certain.
Investing in some of the UK’s most established companies could be very profitable. It can be done through a tracker, otherwise known as an ETF. These are cheap and don’t require much research. Or you can take more risk and buy shares in individual companies.
Another way to invest in many FTSE 100 companies is through an investment trust, which is run by a professional. This provides access to a larger number of holdings. These can often trade at a discount to their net asset value, so you get the shares for less than they should really be worth.
FTSE 100 dividends
There’s been no lack of news recently about listed companies suspending or cutting their dividends. Shell, for example, massively reduced its dividend for the first time since the Second World War.
Depending on the economic recovery, however, there’s potential for dividends to be reintroduced, often from a more sustainable level than they were pre-coronavirus. Or, even without the reintroduction of dividends in the near term, there’s plenty of potential for capital growth from FTSE 100 shares. Many are now on very low price-to-earnings ratios.
It’s also worth remembering many companies are still paying a dividend. Some sectors are better than others for keeping dividends, so if income is important then consumer goods companies such as Unilever could make for a good investment as could utilities and supermarkets. Demand for their products isn’t going away, regardless of what happens to the economy.
Ultimately, I think FTSE 100 shares at the moment carry some risk but also a lot of potential for upside. This is why I prefer them to gold or bitcoin as an investment and hold a number myself, including Persimmon, National Grid, and Legal & General, to give just three examples.
Many FTSE 100 shares now trade on low P/Es, indicating they are cheap. Even looking at the economic data it’s clear governments are doing a lot to keep economies going and that’s helping share prices. This is why I think investing in solid FTSE 100 companies for a long time has the potential to make any investor far richer. Maybe even to make millions.
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Andy Ross owns shares in Legal & General, National Grid and Persimmon. The Motley Fool UK owns shares of and has recommended Unilever. 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.