The stock market can be a confusing place, but if you’re serious about saving for the future, I really think you should be investing your money.
Indeed, according to research by global investment bank Credit Suisse, between 1900 and 2018, UK equities outperformed cash by 4.4% per annum.
In my opinion, the best way to play this trend is to invest in the FTSE 100, and today I’m going to explain the three reasons why I believe this could be the only investment you’ll ever need.
The first reason why I think the FTSE 100 is The One is the fact that it is a global stock market index. More than two-thirds of its profits come from outside the UK, so by investing in the FTSE 100, you are investing in the world. As long as the world continues to grow and develop, the FTSE 100 should continue to trend higher.
This also means the index is relatively insulated from any Brexit fallout. While some of the companies in the index, such as BT, are highly exposed to the UK, most of the index’s businesses are globally diversified and as a whole it is not overly exposed to any one single region.
Steady income stream
The second reason why I think this is a key investment is the FTSE 100’s income stream.
At the time of writing, the index supports a dividend yield of 4.3%. The good news is, unlike individual equities, you don’t have to worry about dividend cuts here. Because the distribution is an aggregation of all the dividends paid by the index’s 100 constituents, it is much more sustainable and predictable. For the yield to fall to zero, every single company in the FTSE 100 would have to eliminate their dividends, which is extremely unlikely.
Even in the financial crisis, income continued to flow and while the banks cut their dividends, other businesses, such as the mining industry, continued to report growing profits and rewarded shareholders with higher payouts.
Click, sit back and relax
The third and final reason why I believe this investment beats all others is that it is so simple to buy and forget the FTSE 100.
It requires almost no time and effort to buy a cheap FTSE 100 tracker fund, which will give you instant exposure to the whole index and manage the portfolio of blue-chip companies on your behalf. When you’ve clicked ‘buy’, all you need to do is sit back and collect your regular dividend cheques.
In comparison, if you went out to buy a portfolio of around 20 individual stocks, you would have to spend a lot of time and effort researching each company and keeping up to date on corporate developments.
With the FTSE 100, you can spend more time doing what you love without having to spend hours poring over balance sheets and profit and loss statements.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 2019