How To Invest In The FTSE 100 In 2024

Read on to learn more about the FTSE 100.

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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Are you a UK investor looking for the latest news and analysis on the FTSE 100? If so, you’ve come to the right place! In this article we'll go over all you need to know, including where to get the latest news and data, the performance of key stocks in the index, and how to make the most of the FTSE 100.

Whether you’re a beginner investor or an experienced trader, you’ll find plenty of valuable insights and advice to help you stay informed and successful. So, read on to learn more about the FTSE 100, and how you can benefit from it.

Understanding The FTSE 100

Think of the financial times stock exchange as the premier index of the UK stock market — a leader in measuring the performance of large companies based in the United Kingdom.

It's essentially an index made up of the 100 largest companies by market capitalization listed on the London Stock Exchange, often referred to as the “Footsie”.

These companies span the entire spectrum of the UK economy and, in turn, the index provides a snapshot of the health and performance of stock markets.

The FTSE 100 is one of the more commonly used trading indexes, used by investors and financial advisers alike to understand how the market is performing.

That said, because the FTSE 100 consists of the top 100 companies on the LSE, it's only a passive index and does not represent the entire market. Small and medium sized companies, as well as foreign companies, are excluded.

The Many Sectors Of The FTSE 100

The FTSE 100 index is divided into various sectors across a range of industries, including:

  • Technology
  • Financials
  • Industrials
  • Consumer Discretionary
  • Healthcare
  • Consumer Staples
  • Energy
  • Real Estate
  • Materials

From here, the sectors are then further divided into sub-sectors, such as Technology — Software & IT Services, Financials — Banks, and Healthcare — Pharmaceuticals & Biotechnology.

Why Invest In The FTSE 100?

With a portfolio of dynamic and well-known businesses, the FTSE 100 has become a popular choice for investors looking to diversify their holdings and gain access to a wide range of investments. But what are the benefits of investing in the FTSE 100?

1. Low Fee Investment

One of the biggest advantages of investing in the FTSE 100 is the low fees associated with the trade. With just one trade, you gain exposure to 100 different companies and sectors, which can often provide a diversified investment portfolio with fewer fees than other index funds.

2. Diversification

Investing in the FTSE 100 provides investors with exposure to many different companies, sectors and indices, providing an excellent way to offset the inherent risks in stock market investing.

3. High Liquidity

The FTSE 100 is one of the most liquid indices in the world. This makes it an ideal choice for investors who want to buy and sell quickly, as the availability of buyers and sellers makes the trade much easier to complete.

How Do I Invest In The FTSE 100?

Whether you already have some experience investing in the FTSE 100 or you're just beginning, setting up a brokerage account is a crucial step in the process. Here's how to get started.

Find An Appropriate Broker

The first step to investing in the FTSE 100 is finding a good share dealing platform. Research the options carefully to make sure you choose one that fits your needs.

You should look into their fees and commissions, customer service and ease of use. You may also want to consider their investment strategies and financial advice they offer.

Sign Up

Once you've chosen a broker, you'll need to create a share dealing account . This will typically require you to provide your name, address and contact information.

You may also be asked to provide additional information and documents, such as a copy of your driving licence and a bank statement.

Fund Your Account

Once your investing account is all set up, you'll need to fund it. Most brokers accept deposits via debit or credit card and bank transfers. You may also be able to fund your account with investments from another broker.

Decide How You Want To Invest

Once you have money in your trading account, it's time to decide how you want to invest. You can choose from a variety of strategies including dividends, growth stocks, long-term investments, and more.

Types Of FTSE 100 Investments

The four main types of investments you’ll find in the FTSE 100 are exchange-traded funds (ETFs), tracker funds, shares and derivatives.

Let’s take a look at each of these in more detail.

Exchange Traded Funds (ETFs)

Exchange-traded funds are investment types that give you instant access to hundreds or even thousands of different securities, including stocks, bonds and commodities.

ETFs allow you to spread your risk, and since they are traded on the exchange, you can buy and sell them very quickly. ETFs are often used by traders, but can also be used as a long-term investment vehicle.

Tracker Funds

Tracker funds are a type of fund that follow the past performance of a particular index or portfolio, such as the FTSE 100.

They are usually passively managed, meaning that the fund manager will not actively buy and sell within the fund like a managed portfolio. This can be a cost-effective way of investing as the fund manager’s fees are usually quite low, but you might lose out on potential profits if the underlying index outperforms your tracker fund.

Shares

Buying individual stocks in companies listed on the FTSE 100 is a great way to invest directly in a wide range of companies. This can be an especially lucrative investment if you’re able to buy and sell at the right moments.

While shares offer the potential for strong, long-term gains, they are also subject to major stock market movements, which can be very volatile, so not overly exposing yourself is advised.

Derivatives

A derivative is a financial instrument that derives its value or price from another underlying asset.

This includes things like futures, options and swaps. Derivatives are generally used by traders and investors looking to speculate on the movements of the underlying asset without actually owning it.

These are typically very risky investments, and should only be used by experienced investors who understand the risks involved.

The Top 5 FTSE 100 Companies

Let's take a closer look at each of these powerful companies.

1. AstraZeneca

AstraZeneca is a United Kingdom-based pharmaceutical company. The company manufactures a range of innovative and effective medicines, spanning everything from cancer treatments to immunology and cardiovascular medications.

AstraZeneca is also investing heavily in research and development, as they look to develop new treatments using cutting-edge technologies. This strategy of investing heavily in R&D sets them apart from some of the other larger pharma companies.

2. Shell plc

This multinational oil and gas company is the second-largest company by market capitalisation on the FTSE 100. Shell is one of the world's leading oil and gas companies, producing oil and natural gas from reserves in the UK, Europe, the Middle East, Africa, Asia, and the Americas.

It also runs a large refining and marketing operations and is one of the largest retail providers of natural gas and electricity in the world.

3. HSBC Holdings

This British-based banking and financial services company is the third-largest company by market cap.

With operations in Europe, Asia Pacific, the Middle East, Latin America, and other parts of the world, HSBC is a financial juggernaut and one of the largest banking companies in the world.

4. Unilever

Unilever is a leading consumer goods company based in the UK, with their own portfolio that includes iconic brands such as Dove, Ben & Jerry's, and Lipton.

They're focused on producing products that are not only safe for consumers, but also have a positive impact on the environment, making it an attractive choice for those interested in ERG investments.

Some of their sustainability initiatives include sourcing raw materials from ethical sources, manufacturing goods with energy efficiency in mind, and reducing packaging where possible.

5. BP

BP is an established powerhouse on the London Stock Exchange, and has the second-largest market cap of the FTSE 100’s energy-related sectors.

BP owns a vast array of assets and subsidiaries and is one of the largest companies on the FTSE by revenue, making around £180 billion in 2022.

Things To Keep In Mind Before Investing

1. Know What You’re Getting Into

Nobody would deposit their hard-earned money into a random bank account without understanding what it was for and why they were investing in it. The same is true when investing in the stock market.

It's paramount you know the basics of what the FTSE 100 is, how it works, and what industries are included in the index. Additionally, it’s important to understand the risks associated with investing in the FTSE 100, such as the potential for significant losses.

2. Find Companies That Suit Your Investment Strategy

Before you invest in the FTSE 100, you need to determine which companies within the index best fit your investment strategy.

Do you want to invest in companies that create products within a specific industry? Or do you want to stick to companies with a certain market capitalization?

Taking the time to research the options available to you can help you make better informed decisions about which FTSE 100 companies to invest in.

3. Understand The Performance Of Different Companies

It’s also important to research the individual performance of the companies in the FTSE 100, making sure you’re investing in companies that have a history of outperforming the market.

Check out the company’s financial reports, read analyst reports and stock market research, and pay close attention to the company’s news announcements, as all of this will provide you with valuable insight into the company’s performance and growth potential.

Doing Your Homework

So, how do you go about researching your investments before investing in the FTSE 100? Here are some tips.

1. Start With Stock Market Research Platforms

Stock market research platforms like Yahoo Finance, Investopedia, and Marketwatch are great places to start when researching the FTSE 100. These sites provide a wealth of information on the individual companies in the index, including a description of their businesses, their stock prices, and their performance over the last few years.

2. Read Analyst Reports

The majority of companies listed on the FTSE 100 will have analyst reports that provide insight into the company's performance. Reading these can help you understand the company's competitive advantage, their prospects for growth, and their overall performance.

3. Follow News Announcements

Companies listed in the FTSE 100 will often make news announcements that can have an impact on the stock performance. Follow the company’s news releases, watch interviews of their executives, and track the company’s performance in the media to better understand their business and their potential for future growth.

Making Smart Investment Decisions

While the FTSE 100 is a popular investment option amongst those wishing to diversify their portfolios, it’s important to develop a sound understanding of technical analysis when making investment decisions.

What Is Technical Analysis?

Technical analysis involves researching a security’s trading history, to determine how it has performed in the past and how it may perform in the future. The process is made up of several factors and tools, all of which work together to help you make more informed trades.

One of the more common methods employed in technical analysis is charting, where charts are created to visually display patterns such as support and resistance levels. This type of pattern analysis provides valuable insight into anticipated trading activity, and can also be used to identify other trends.

Technical Indicators & Market Momentum

In addition to analysing chart patterns, technical analysis is often used to explore moving averages as well as leading and lagging indicators. Moving averages can be used to help identify overall price trends, while leading and lagging indicators can help anticipate possible reversal points in the market.

Furthermore, technical analysis can be used to measure market momentum, which is crucial for getting an indication of whether a security or the overall market is bullish or not.

Technical Analysis VS Fundamental Analysis

While technical analysis and fundamental analysis are both important tools when it comes to making investment decisions, they are in fact very different. Fundamental analysis takes more of a macro view of an asset’s financial status and provides an estimation of its value by reviewing factors such as the asset’s profit and loss statements, staying power, and future prospects.

On the other hand, technical analysis takes a micro view of an asset’s trading history and focuses on the price movements of the asset — without taking into consideration the underlying asset’s economic fundamentals.

How To Chart The FTSE 100

Charting the FTSE 100 is a straightforward process and is something that every trader should know how to do.

First and foremost, you’ll need to find a reliable source of real-time data. As mentioned earlier, you can find this type of data from a financial website like Yahoo Finance or a trading platform such as eToro.

Once you have your data, you can begin plotting the chart. Generally, a candlestick chart is recommended for tracking the FTSE 100. This type of chart shows the closing price, opening price and the highest and lowest price of the stock on a particular day.

The red and green ‘sticks’ on the chart indicate whether the price of the stock rose or fell on that day. You can also use other kinds of charts such as a line chart or a bar chart, but the candlestick chart offers the most comprehensive look at the FTSE 100.

In addition to plotting the FTSE 100 index, you can also use different technical indicators to help you analyse the movements of the stock. These can include moving averages, oscillators, trend lines and more.

These technical indicators are useful for identifying buying or selling opportunities, as they can help you spot trading patterns and get a better understanding of the markets.

Finally, after you’ve plotted and analysed the FTSE 100, you can start making trades. It is highly advisable to backtest your trading strategy before risking any real money and to use stop losses to protect your capital.

How Does The FTSE 100 Compare To Other Major Indices?

Let’s start by looking at the Dow Jones Industrial Average (DJIA), which is made up of 30 large publicly traded companies in the US. It is the oldest and best-known of the US stock indices.

The DJIA is highly volatile and heavily influenced by US economic data and company news. The FTSE 100, on the other hand, is more stable, with less volatility and less steep drops.

Another major comparison is to the S&P 500, which is very similar to the DJIA but with 500 component companies across a broader range of sectors. The S&P 500 is composed of the largest 500 companies in the US, and is considered to be a good gauge of the US equity market, similarly to the role the FTSE 100 plays in the UK.

While the S&P 500 is more volatile than the FTSE 100, the two indices have a recent history of following a similar pattern.

Finally, let’s look at the Nikkei 225, the Japanese stock index. This index is made up of 225 companies and is considered to be the most important index in Japan; also heavily influenced by economic data and company news. The Nikkei 225 is significantly more volatile and can experience big swings, while the FTSE 100 is generally much less volatile.

Set Reasonable Expectations

It is natural to feel excited when investing, given all the potential rewards. However, all investments have associated risks, and to increase your chances of achieving the best possible returns, it is important to have realistic expectations.

The reality is that investing in the FTSE 100 carries no guarantee of success or protection against capital loss. As such, there is no guarantee of positive returns or consistent performance.

The FTSE 100 can be a seriously volatile market, driven by global events and macroeconomic movements, so the risk of your investments can vary significantly from day to day. Additionally, political and economic events can cause sudden and unpredictable changes in investment performance.

In light of this, it is essential to be realistic in your expectations and ensure that your investments are safeguarded against potential losses.

Finally, if you are struggling to set expectations or manage your investments, it is wise to enlist the help of a qualified financial professional. With their expertise, they can help assess your situation and offer guidance on the best steps to take in order to achieve your goals.

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