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Long-term investing: will the FTSE 100 rally as optimism grows?

Kirsteen Mackay
·3-min read
Hand holding pound notes
Hand holding pound notes

I want to secure my financial future and I think long-term investing is the answer. That’s because over time, good-quality companies reward shareholders and the compounded gains can be significant. The first place I look is the FTSE 100, with its international focus and well-established businesses. Rather than trying to time the market, I regularly invest and try not to worry about the ups and downs. Here’s why I think stock market investing is appealing.

FTSE 100 resilience

With Brexit finally done, after an epic four-year journey, the UK economy is breathing a sigh of relief, despite short-term obstacles. The lockdowns are a huge inconvenience, but with the vaccine rollout under way, investors are feeling hopeful that the temporary disruption will make way for a much stronger future.

Despite a hopeful start to the year, the FTSE 100 has bumped along with no real momentum. However, I believe that’s sure to change once the economy reopens for real. Of course, none of us can be sure that this lockdown will be the last. But with regions emerging gradually and full steam ahead on vaccine rollout, I think there’s reason to be hopeful.

In any case, I think it’s vital to remember the FTSE 100 contains many top-quality companies that will ride out the Covid-19 storm and still be standing far into the future. That’s why I’m happy to invest a regular sum into my Stocks and Shares ISA each month and simply leave it to grow.

Pound-cost-averaging

If I invest in the same stock or fund each month, this is known as dollar-cost-averaging or pound-cost-averaging. That’s because I’m not timing the market specifically when the price is low, I’m simply committing to buy shares on a set date each month. This means I sometimes pay more or less depending on market sentiment, but over time, the price paid averages out.

Emotional risk in long-term investing

Long-term investing can offer a slow and steady road to riches. Billionaire investors like Warren Buffett and Joel Greenblatt follow a value investing strategy that’s paid off handsomely. But sticking to it is easier said than done. Extreme market volatility can scare investors into making emotionally charged decisions. Either selling at an unnecessary loss or buying duds because they’ve fallen so fast and look cheap.

To get past that, I try to focus on the bigger picture, historically, stocks go up longer than they go down. As long as I’ve picked strong businesses, then there’s no reason to panic when market sentiment plummets.

Compounding raises investment value

If I invest £200 a month at a 5% annual interest rate, then after 20 years I’ll have over £81,000. That’s a nice sum to look forward to. If I can invest more, achieve a higher rate of return and leave it for a longer period, then the compounding effect will be much greater. Of course, I always run the risk that my investment could go down as well as up.

With consumer sentiment rising, confidence in the stock market is growing too. I think there’s good reason to believe the FTSE 100 will rally once we bring the pandemic under control and the country reopens. Before, during and after I’ll happily continue investing towards a brighter financial future using pound-cost-averaging and a long-term investing strategy.

The post Long-term investing: will the FTSE 100 rally as optimism grows? appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2021