The FTSE 100 hit a new intra-day high of 7,996 yesterday morning and we may not have to wait long before it breaks the 8,000 barrier for the first time ever.
That may feel like an historic moment but 8,000 is only a number, and the index could just as easily fall back next day. In fact, I’d say it’s more likely than not. While history shows that stock markets rise over the longer term, they rarely climb in a straight line.
UK blue-chips are flying
It’s more a case of two steps forward, one step back. Or maybe two, three, or four steps back. Either way, the destination is the same. Markets climb higher given time, and those who invest for the long-term will reap plentiful rewards.
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I’m pleased to see the FTSE 100 enjoy its day in the sun, though. For years it was overlooked, as those whizzy US tech stocks hogged the limelight. Many investors were so fixated on the FTSE 100’s lack of tech exposure that they failed to see its strengths.
The index is full of solid, established companies with true global reach, as they generate more than three-quarters of their earnings outside the UK. They also pay some of the most generous dividends on earth, with an expected yield of 4% this year, plus share buybacks on top.
This doesn’t look so exciting when Tesla is doubling your money every week, but it does when global stock markets are all over the place, as they have been lately.
There are still plenty of reasons why the FTSE 100 could climb higher. It remains cheap, trading at just 10.7 times forecast earnings, compared to 15.7 for the rest of the world. That’s a discount of 32%, the widest in decades, according to analysis from investment platform Bestinvest.
Investing is for the long term
Its 4% dividend yield easily beats the global average of 2.3% and also the 3.40% yield on 10-year gilts, bonds issued by the UK government. The world is on the brink of recession but the FTSE 100 has plenty of defensive stocks in the healthcare, tobacco, utilities, energy, and consumer staples sectors.
It isn’t hard to name reasons why the FTSE 100 could fall, either. The world remains on the brink of recession. Inflation is proving sticky, and interest rates may have to stay higher for longer as a result. Geopolitical problems abound, such as the war in Ukraine and rising tensions between the US and China.
So yes, the FTSE 100 could easily crash. After such a bright start to 2023, which has seen the index rise 5.34% year to date, it’s as likely as not. That doesn’t worry me, though. I’m investing for 20 to 30 years and over such a period, I expect the FTSE 100 will make me a fair bit richer.
Any pullback in the months ahead would be an opportunity for me to pick up more FTSE 100 stocks at lower valuations. The index is cheap today, but if it falls it could be even cheaper.
Either way, my personal strategy is exactly the same. Whenever I have cash to spare, I will buy FTSE 100 stocks. That includes today.
