It is a very tough time to be a UK-based investor right now. It seems as if everywhere you look there is bad news. Brexit dominates the headlines daily, and at the same time, relations between the United States and China are becoming increasingly frosty. We don’t know at this point if these two countries will take their trade war further or try to reduce tensions.
And away from these two trading superpowers, the rest of the world is hardly in rude health. Economic growth across Europe is slowing, headlines from South America are dominated by the economic collapse of Venezuela, and Asia ex-China is in danger of catching China’s economic cold.
Trying to invest in this environment is difficult, but not impossible in my view. In fact, I believe that one investment will continue to churn out sturdy returns for investors for the foreseeable future, no matter what happens to the UK.
Blue-chip index
I think buying the FTSE 100 is one of the best strategies to protect your money today. First of all, as more than two-thirds of the index’s profits come from outside the UK, I think it is one of the most Brexit-proof investments around.
What’s more, as we have seen recently, the FTSE 100 rises as the pound falls (because a weaker currency translates into higher profits for constituent companies), giving investors some protection against sterling volatility.
That being said, if the pound starts rising again it could act as a drag on this blue-chip index, but I reckon that if sterling does increase in value as a result of a Brexit deal, investor buying will offset the adverse currency effects.
Dividend champion
The second reason why I think buying the FTSE 100 is one of the best ways to protect your money today is the index’s aggregate dividend.
Right now, the index supports an average dividend yield of 4.5%, a yield that in my mind is too good to pass up. Not only is this significantly more than the best interest rate available on cash savings accounts today, but it is a well-diversified income stream of 100 of the world’s largest and most important companies.
As noted above, most of the FTSE 100’s profits come from outside the UK, so this yield should be safe no matter what happens to the UK when it leaves the EU at the end of March next year.
Cheap as chips
Thirdly, in the past few decades, there have only been a few occasions where UK stocks have been more attractive from a valuation perspective than they are today.
According to data supplied by the Financial Times, the FTSE 100 is currently trading at a forward P/E of 11.5. Since 1994 the index has only been cheaper on two occasions, for a few months in 2009 and a few months in 2012.
At the same time, as I noted recently, the dividend yield on the FTSE All Share has jumped to 4.3% over the past few months. There’s only one occasion in the past two-and-a-half decades where the return has been higher: the 2007-08 financial crisis.
That’s why I think now could be the time to buy the FTSE 100.
