How I plan to beat the FTSE 100 in 2018

Here’s how I plan to get an edge over the FTSE 100 (INDEXFTSE:UKX).

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.

One of the greatest challenges of investing in shares is controlling your emotions. It’s all too easy to become excited and overconfident about the performance of an investment portfolio following a Bull Run. After all, last year saw the FTSE 100 deliver a total return in the double-digits, which is likely to have helped swell the value of most investors’ portfolios.

However, the reality is that a bull market never lasts in perpetuity. A bear market is always on the horizon. As such, focusing on the fundamentals of investing could help Foolish investors stay ahead of the FTSE 100 in 2018.

An honest approach

With share prices having risen sharply last year, many investors may be tempted to take greater risks than they normally would. This could be because many of their investment decisions of recent years have proven to be correct, and they may be feeling relatively confident about their ability as an investor.

The reality, though, is that a rising portfolio is likely to have benefitted significantly from increasing share prices. Economic policies such as low interest rates across the developed world have provided strong trading conditions for a number of companies and sectors. In turn, this has provided catalysts for profit growth, which has delivered rising share prices across a range of industries.

As such, a focus on the potential for losses as well as for gains may help investors to maximise their own overall performance in 2018.

A long-term standpoint

Clearly, it is easy to become highly enthusiastic about the performance of share prices given that the index is at record highs. In the short run, more capital growth could be ahead. However, in the long run there is a good chance of economic difficulties and even a recession. Therefore, focusing on the long-term potential of a business before buying it could be a shrewd move for investors to make.

For example, a company may be highly profitable today, but its success could be built upon a risky balance sheet. Similarly, high levels of profit may be unsustainable, or a company may lack the diversity to survive a recession. By focusing on the sustainability of a company’s business model and its capacity to perform well in a variety of economic conditions, an investor may be able to gain an edge over the wider index.

Dividends

One area in which there could be significant upside potential is dividend stocks. Investors seem to be highly enthused about the growth potential for cyclical stocks at the moment, and this has pushed their valuations higher. However, with inflation at 3.1% and having the possibility of edging higher this year, dividend shares could become more popular as the year progresses.

As such, buying a range of companies that pay generous dividends which could increase in future years may be a sound means of outperforming the FTSE 100 in 2018 and beyond.

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »