How Safe Is Your Money In The FTSE 100?

Is the FTSE 100 (INDEXFTSE:UKX) still a safe buy, after five years of strong gains?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re considering investing some of your money in the FTSE 100 (FTSEINDICES: ^FTSE), via a tracker fund such as the iShares FTSE 100 (LSE: ISF), then you will probably be hoping for some capital gains, along with a reliable dividend income.

stock exchangeBefore buying, you need to ask: is the index expensive, how much income will you receive, and will that income keep pace with inflation?

To answer these questions, I’ve taken a closer look at the current valuation of the FTSE 100.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

1. P/E

The FTSE 100 currently trades on a P/E ratio of 13.8, which is pretty average, historically, and is a reasonable level to buy at.

Although the index has risen by 78% from its low of 3,530 in March 2009, it’s worth emphasising how cheap shares were back then: many investors genuinely believed that the whole financial system was in danger of collapse.

As a result, although investors who bought into the market in 2009 did very well, there is still plenty of opportunity for today’s new investors to earn decent returns in more normal times.

2. Dividend yield

The FTSE 100 currently offers a dividend yield of 3.5%, which is far higher than that available from government bonds, or cash savings.

Although a number of FTSE 100 companies offer reliable yields that are considerably higher than 3.5%, the income from a single company cannot ever be as secure as the income from a large-cap index such as the FTSE 100, which is made up of around a 100 different companies, most of which contribute to the ‘FTSE 100 dividend’.

3. Dividend cover

The safety of a company’s dividend is traditionally judged by how many times it is covered by earnings per share, with most investors looking for a cover level of around 2. If cover falls too far below 2, the risk that the company will be forced to freeze, or even cut its dividend starts to rise.

Dividend cover can also be calculated for the FTSE 100 as a whole, and the current level of dividend cover for the FTSE 100 is 2.1, which looks pretty safe to me.

Beating the FTSE

Overall, I’d say that the FTSE 100 is a pretty safe buy at the moment, and should deliver respectable returns.

However, you may also want to spice up your portfolio with a few shares that have the potential to outperform the index, boosting your returns.

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland does not own shares in any of the funds mentioned in this article.

More on Investing Articles

Investing Articles

3 high-yield dividend shares to consider buying for a retirement portfolio

Dividend shares can provide retirees with regular passive income in their golden years. Our writer picks out three with yields…

Read more »

Investing Articles

Tesla stock has halved. Could it now double – or halve again?

After a wild few months for Tesla stock, Christopher Ruane weighs some pros and cons of the investment case. Could…

Read more »

Investing Articles

Does it make sense to start buying shares as the stock market wobbles?

Does a rocky stock market make for a good or bad time to start buying shares? This writer reckons it…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£15k of passive income a year? It’s possible with the right dividend strategy!

To figure out how much dividends are needed for a lucrative passive income stream, investors must understand which strategies get…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As US markets wobble, I’m listening to Warren Buffett!

The long career of billionaire investor Warren Buffett has included plenty of market turbulence. Here's what our writer's learnt from…

Read more »

UK money in a Jar on a background
Investing Articles

5 shares yielding over 5% to consider for a SIPP

Christopher Ruane introduces a handful of FTSE 100 and FTSE 250 shares he thinks an income-focussed SIPP investor should consider.

Read more »

Investing Articles

Here’s how an investor could invest a £20k ISA to target £1,500 of passive income per year

Can a £20,000 ISA throw off close to £30 per week on average of passive income when invested in blue-chip…

Read more »

Investing Articles

As gold hits $3,000, this FTSE 100 stock is primed for blast off

As Western institutions scramble to get as much gold as they can lay their hands on, Andrew Mackie believes this…

Read more »