Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Investors use the term index to describe a group or category of company stocks. Different indices are made up of different stocks. The FTSE 100 is one of these indices and is very popular with British investors.
The FTSE 100 is an index made up of the biggest 100 firms trading in the UK. It’s a helpful barometer for the British markets and used by investors who want to gain exposure to the country.
How is the FTSE 100 defined?
To qualify for the FTSE 100 a company must be listed on the London Stock Exchange and be denominated in pounds. There are a few other stock liquidity requirements.
The index is made up of the 100 biggest companies that meet these requirements by total value. In simple terms this means they are the biggest 100 companies in the UK. A lot of the companies in the index are household names. They are solid companies that are unlikely to go bust, but that doesn’t mean that growth is guaranteed.
The index is weighted depending on size, so larger companies will have a bigger influence on performance than smaller ones.
How to invest in the FTSE 100?
There are two main ways to get exposure to the FTSE 100: investing in stocks or funds.
You could buy stock directly in companies which feature on the list. The advantage of this approach is that you can pick and choose which stocks you think will be a good investment and avoid others.
You’ll need to consider diversifying by buying a range of stocks and not remaining overly reliant on one. This would protect your portfolio if your chosen stock underperforms and loses money.
Buying a stock is flexible and can lead to higher returns, but it is generally more expensive than investing via funds because of fees and charges.
You could also buy a fund that tracks the FTSE 100. Funds pool investors’ money together and use it to buy stocks. They are a very cost-effective way to invest, as charges are usually very low, but you don’t own the stocks and don’t have direct control. A tracker fund will simply replicate the performance of the index.
An example is the iShares Core FTSE 100 UCITS ETF which features on our Select 50 list of funds selected by experts.
Some funds which invest in FTSE 100 companies are “actively managed”. This means a fund manager is overseeing your investments and making decisions. Theoretically they can beat the market but be aware that this isn’t guaranteed and the fees are likely to be higher.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Direct shareholdings should generally form part of a well-diversified portfolio of other investments. There is no guarantee that the investment objective of any index tracking sub-fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. Select 50 is not a personal recommendation to buy or sell a fund. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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