How to invest in the FTSE 100

Our News
1

Originally published at: https://blog.investengine.com/how-to-invest-in-the-ftse-100/

The FTSE 100 is the UK’s flagship stock market index, made up of 100 of the biggest companies in the UK. It serves as a snapshot of the country’s economic powerhouses, from banks and oil giants to supermarkets and consumer brands.

But how do you invest in the FTSE 100? Whether you’re looking to get started or want to diversify your portfolio, here’s how to access the index using low-cost ETFs, and how to do it tax efficiently with InvestEngine.

What is the FTSE 100?

The FTSE 100 (often pronounced “footsie”) tracks the share prices of the 100 largest companies listed on the London Stock Exchange. These are the UK’s most established businesses, covering a wide mix of sectors.

You’ll find familiar names like:

  • HSBC and Barclays in banking
  • Shell and BP in energy
  • AstraZeneca and GSK in healthcare
  • Tesco, Unilever and Diageo in retail and consumer goods

The index is updated quarterly, with companies added or removed based on market value. Because of its size and diversity, the FTSE 100 is often used as a key indicator of the health of the UK economy.

Why invest in the FTSE 100?

There are several reasons UK investors turn to the FTSE 100:

  • Diversification. The FTSE 100 is well-diversified within the UK market, featuring a range of sectors.
  • Exposure. Investing in the FTSE 100 can give you access to well-established companies with global reach.
  • Relative stability. Because the FTSE 100 features the UK’s most established companies, they’re relatively stable.
  • Easy to invest in. You can invest in the via low-cost index-tracking ETFs with ease.
  • A useful foundation. FTSE 100 ETFs can be an important part of a balanced, long-term portfolio.

The UK market may not feature the glamour of the US tech companies like the S&P 500, but it can be an important part of a wider, diversified investment portfolio.

How to invest in the FTSE 100

You can’t invest directly into the indexes. You can, however, invest into an index fund or exchange-traded fund (ETF) that tracks the index.

1. Choose a FTSE 100 ETF

The simplest way to invest in the index is through an Exchange-Traded Fund (ETF) that tracks the FTSE 100. 

These funds are ‘baskets’ which hold the companies that make up the index they’re tracking. As such, these funds aim to replicate the performance of the index, at a lower cost than that of active management.

Some options include:

The specific constitution of the different ETFs that track the index vary slightly. These are also by no means the only ETFs that track the UK market, so do a little research before making any investment decisions.

All of these are available on the InvestEngine platform and come with low annual charges (typically between 0.07% and 0.10%).

They’re also eligible for InvestEngine’s fractional investing and Savings Plans. This means you can buy a slice of an ETF from as little as £1 and automate your investing for the long-term. 

2. Pick your investment account

Choosing your account type is an important decision for anyone looking to invest. Depending on your goals, you can hold your ETF in:

  • A GIA (General Investment Account) – Flexible, with no limits, though gains and dividends may be taxed above your allowances. Ideal for anyone who has maxed out their ISA allowance already.

Want to invest through your company? Our Business Account also supports ETFs that track all the major markets.

We compare ISAs and SIPPs in this article. They do different things but, for a lot of investors, one or both will be sufficient. 

Investing through a tax wrapper like an ISA or SIPP can help you keep more of your returns.

3. Decide how and when to invest

How you invest is up to you and will depend on your goals and your financial situation. You can:

  • Invest a lump sum – useful if you’ve saved up or received a windfall.
  • Set up regular contributions using an InvestEngine Savings Plan

Watch our video explainer to learn more about how investing regularly compares to investing a lump sum. 

Savings Plans automate weekly, fortnightly or monthly payments from as little as £20. So, you can set up your regular investments then sit back and relax as your portfolio ticks over. 

What to consider before investing

While the FTSE 100 can be a great starting point for UK investors, there are a few things to keep in mind:

Limited sector exposure

The FTSE 100 is heavy in certain areas — especially financials, energy, and consumer staples. It’s also lighter on technology. For a more balanced approach, investors may want to combine it with other global or thematic ETFs.

Overconcentration

Similarly, FTSE 100 ETFs are obviously limited to the UK. This means their performance is, often, intimately tied to the performance of the broader UK economy – it’s advisable, then, to spread your investments across countries. 

Currency exposure

Although FTSE 100 companies are UK-listed, many earn revenue overseas. That means their performance is often influenced by the strength of the pound. A weaker pound can actually benefit FTSE 100 companies with global earnings.

Why use InvestEngine to invest in the FTSE 100?

At InvestEngine, we make it easy to invest in the FTSE 100, whether you’re new to investing or building a long-term strategy.

Here’s what you get:

You can open an account in minutes and start building your UK investment portfolio today.

Final thoughts

ETFs are a simple, low-cost way to get exposure to the UK’s largest companies.

It offers broad exposure across sectors and industries, and can work well alongside global ETFs to create a diversified portfolio.

Whether you’re investing through an ISA or SIPP, it’s easy to get started with InvestEngine.

Important information

Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest. 

Tax treatment depends on your personal circumstances and may change in future. This article is for general information only and does not constitute financial advice.