People invest for all sorts of reasons, to build wealth, to save for retirement or to increase the growth potential of their money.Â
You may want to consider investing in the FTSE 100, one of the most famous share indexes in the world. If you want to find out how to invest in the FTSE 100 then read on.
Table of Contents
What Is The FTSE 100?
The FTSE 100 or Financial Times Stock Exchange 100 Index is a share index of the top 100 companies listed on the London stock exchange.
They are listed on the FTSE 100 because they have the highest market capitalisation. This share index is used as a key measure of how the top 100 companies in the UK are performing.
There are other indexes such as the FTSE 250, and the FTSE All Share but the FTSE 100 is the most commonly used UK stock market indicator. As a barometer of the UK as a whole the FTSE is not the most reflective as it contains a lot of companies with international interests.
The FTSE 250 is a truer gauge of the UK economy as it has a smaller percentage of international companies. In order to be included in the FTSE 100 a company has to meet the requirements set down by the FTSE Group.
The companies found inside the FTSE 100 list are famously big oil, mining, insurance and defense.
These include a complete listing on the London Stock Exchange with a sterling or Euro price on the Stock Exchange Electronic Trading Service.Â
Ways To Invest
There are two main ways that you can invest in the FTSE 100. You can invest directly in one company or in a few different companies that are listed on the index.
Alternatively you can invest in the whole FTSE 100 by using an Exchange Traded Fund. The way you choose to invest will depend on your circumstances and your attitude to market exposure.Â
Trading & Investing In FTSE 100 Shares
To trade in FTSE 100 shares you will need to have a brokerage account and use a share dealing platform such as Invest Engine or eToro. When buying shares you may decide to invest directly in a single company listed on the FTSE 100.
As they are the biggest companies in terms of market capitalisation you will benefit from good dividends or be able to sell the shares at a later date for a profit.Â
Just looking at the top ten companies of the index you will see that the range of sectors to invest in is very wide. You can buy shares in pharmaceutical companies, energy firms, banking or mining.Â
Trading & Investing In ETFs
If you prefer to diversify your investments then an ETF is perhaps the best option for you. An ETF is an Exchange Traded Fund and will track an index, sector, chosen stocks or particular commodity. Essentially they’re baskets of chosen stocks managed by a Fund Manager. Â
In the case of the FTSE a FTSE based ETF will track the index but may only track certain stocks within it.Â
Through the ETF your investment will be spread across all 100 of the companies listed in the FTSE 100. The fund will then closely track the index while spreading the risk and diversifying your portfolio.Â
What To Look For Before Investing
Before you go ahead and invest in the FTSE 100 there are some things to consider first.Â
The FTSE 100 is weighted by market capitalisation. This means that larger companies will have a greater impact on the index as a whole. Rises and falls in the share prices of these companies, particularly the top four will cause a shift in the entire index.Â
As there are international companies within the FTSE 100 it is not the best indicator of how the UK economy is faring.When the international operations of some of these companies do well it doesn’t automatically reflect the health of the UK economy.Â
Â
However many of the listings on the FTSE 100 are some of the most established names and operate in a stable and consistent way.This can be reassuring if you are particularly risk averse but also take the time to look at the recent growth rate of the FTSE.Â
Consider the reason for your decision to invest. If it is for a retirement fund rather than making lots of money quickly you will need to choose the most appropriate method of investing.Â
How To Invest In The FTSE 100
To invest in the FTSE 100 you will need to open a trading account which can be done through one of the trading platforms.Â
You can choose the platform that best suits your needs. For example some have a user friendly interface while others will offer educational support to help you make the most of your investment choices.Â
Fee structures will vary on these platforms, some will charge a flat monthly fee while others will ask for a percentage of what you hold.Â
You will need to deposit enough money into your account to allow you to trade at the level you want.
It’s a good idea to only deposit the amount that you want to trade with and not leave any funds just sitting in the trading account as it will not be earning any interest.Â
Some platforms may charge a deposit fee so make sure you know how much this is so that you have enough money to cover it. Now all that is left for you to do is to choose what you are going to invest in, individual shares, index tracker funds or ETFs.Â
The benefit of shares and ETFs is that you can either invest or trade in both of these at any time during the day but index mutual funds can only be traded at the end of the day.Â
In Conclusion
There are a few options available to you in order to invest in the FTSE 100 as outlined above.Â
If you are unsure about any aspect of investing it is always recommended that you seek help from a professional financial advisor.Â
We hope this guide on how to invest in the FTSE 100 has been helpful.
Share on social media
Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
