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Time to buy the FTSE 100? Ten facts to help you decide
The FTSE's near its all-time high but still might be good value. Facts and stats to help private investors
With the FTSE 100 index a whisker away from breaking its record high, we name 10 facts and stats of use to investors.
1. Investors who bought at the worst time are up by 60pc
The worst time to buy shares is at the top of the market and those who bought the FTSE 100 on December 30 1999 did exactly that.
As the FTSE 100 has traded pretty much sideways over the past 15 years, those who just invested a lump sum would not have made money.
But those who reinvested the dividends would have made a 60pc return, research by broker Hargreaves Lansdown has found, turning £10,000 into £16,000.
2. Fewer than half of the stocks in the FTSE 100 have survived since 1999
Since 1999 dozens of companies have left the bluechip index. Some, including Abbey National, were bought by a rival firm, while others, such as Woolworths, filed for bankruptcy. Most were simply relegated from the index. Since 1999, 39 of the top 100 companies no longer feature in the FTSE 100, while 12 have been taken over by other FTSE 100 firms.
3. Only four tech and telecom shares remain
At the height of the technology boom 15 years ago, there were 14 tech and telecom shares in the index. Now only four are left - ARM Holdings, BT, Sage and Vodafone.
4. Shares are cheaper than in 1999
The price to earnings ratio (p/e) of the FTSE 100, which measures stock market value against annual profits, is much lower today than it was in 1999, indicating that shares are cheaper. The index currently has a p/e of 15.7, based on the past 12 months. In 1999 the index was trading on a p/e of 27.
5. Shares are cheap compared with historic averages
The FTSE 100's p/e is slightly cheaper than its average p/e valuation of 15.8, suggesting that shares are not expensive.
6. For the FTSE 100 to become as expensive as American shares the index would have to soar
Some rather bold analysis by Motley Fool, the financial website, said the S&P 500 had a p/e of 19.2, so was valued 39pc more highly than the FTSE 100. To reach the same valuation, the FTSE 100 would have to rise to 9500.
7. The best time to buy shares was 2009
Since 1999 there have been some spectacular falls: in 2000 when the tech bubble popped, and in 2007 when the financial crisis took hold. But the best time to buy was when the FTSE 100 bottomed out in March 2009 at 3512. It has since risen by 96pc.
8. The FTSE 250 has performed better
It has taken 15 years for the FTSE 100 to get close to its record high. But the FTSE 250 broke through its all-time high in December 2012 and has gone on to post several records since.
9. Cheapest stocks in the FTSE 100
A "screen of screens" by Stockopedia, which uses a variety of measures based on techniques of the world's most famous investors, identified two housebuilders, Persimmon and Berkeley, as among the cheapest shares on the FTSE 100. Yields are 10.5pc and 7.5pc respectively. Valuations are simplistics and the fortunes of each are heavily dependent on the future direction of the UK property market.
10. Backing the FTSE 100 is low cost
There are two ways investors who do not want to buy shares should play the FTSE 100.
The first option is to buy a fund that is managed by a fund manager who has a proven track record for consistently beating the stock market and peers.
For UK funds we have named the experts’ top tips in the two articles below.
Alternatively investors can buy a tracker fund, which follows the path of stock markets indices, such as the FTSE 100.
The cheapest FTSE 100 tracker is offered by Fidelity, which costs just 0.07pc a year, closely followed by Vanguard, which charges 0.08pc. BlackRock’s tracker charges 0.16pc, while Legal & General and HSBC are also competitive, at 0.17pc a year. Costs of the fund supernarket you use will also apply.
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