FTSE 100 shares are down sharply today as chancellor Kwasi Kwarteng’s mini-budget speech continues to rattle global markets. The index has fallen 1.11% to 6,940, at time of writing. That’s the lowest level of the year. It is now down 7.53% in 2022.
Sterling is in freefall as traders expect base rates to hit 5.8% next year. That’s a huge increase on today’s 2.25%, which is already the highest for 14 years.
FTSE 100 shares are falling today
There are even reports that the Bank of England may have to announce an immediate base rate hike to stop the pound’s rout. That could be as much as 2%. Panic is setting in and FTSE 100 shares are not immune.
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I’ll leave others to discuss the politics of Kwarteng’s controversial budget. My focus is on the FTSE 100 and only one thing matters to me right now. Shares listed on London’s index are cheaper than they were just a few days ago.
I am building a portfolio of FTSE 100 shares for retirement and my strategy is simple. I buy when they look relatively cheap and hold them for the long term. And when I say long-term, I mean decades.
I believe the longer I invest, the better my chances of generating serious wealth from the stock market. As we have seen this year, shares are highly volatile. In the short term, nobody has any idea where prices will go.
Yet in the longer run, the trajectory has been upwards. Better still, FTSE 100 shares pay generous dividends. By reinvesting them into my portfolio to buy more stock, I can make money even if the market goes nowhere for years.
When I wrote about the FTSE 100 last week, the index was yielding an impressive 3.93% a year. After today’s dip, that has increased to an even juicier 4.14%. So already I’m getting 0.21% more income as a result of today’s drop.
Some individual stocks on the lead index have fallen fast this morning. The housebuilding sector is selling off as investors assume that higher interest rates will drive up mortgage costs will make property even less affordable.
Taylor Wimpey is down 7.03%, at time of writing, with Persimmon down 6.07% and Berkeley Group Holdings falling 5.34%. Yet I still think this is a good sector to invest in. Property shortages should limit the chances of a full-blown house price crash.
These stocks offer amazing yields
The housebuilding sector is a happy hunting ground for dividend income. Taylor Wimpey now yields 8.95% and trades at just 5.73 times earnings. Persimmon yields an incredible 18.53% and is valued at a dirt-cheap 5.43 times earnings.
There are plenty more bargain FTSE 100 shares out there, as the market sells off through no fault of its own. Naturally, buying stocks today could be risky. The index could easily fall further tomorrow. That is a chance I am willing to take.
I accept that I will never buy at the absolute bottom of the market. Today’s low valuation is good enough for me. If FTSE 100 shares do fall further, I’ll simply buy more at the lower price. Then hold them for decades.
