Could the FTSE 100 make you a million in 2019?

Here’s why I think the FTSE 100 (INDEXFTSE: UKX) is a serious buy right now.

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.

I’ve suggested that the FTSE 100 could be set for a record 2019, but I really wasn’t expecting it to start the year with such a bang.

After a 12% fall in 2018 (with the FTSE 250 losing 15% too), we’ve seen a storming recovery since the New Year of a shade short of 10%.

Obviously it’s way too early to guess at how the Footise will end the year (especially as it had a reasonable first half last year before plunging), but I’m seeing consistent signs that UK shares as a whole are significantly undervalued.

Gloom

First off, you really don’t need to be an investment expert to see how pessimistic people are feeling about the economy and about UK shares now, especially as the Brexit-related storm clouds have been gathering. And whenever emotion is driving people’s attitudes to shares, in my experience it’s always overdone.

So when markets are down due to people feeling gloomy, it’s very likely that they’re too far down.

Strong companies

That’s supported by the actual fundamental performance of our companies. Looking at our very biggest listed firm, Royal Dutch Shell, we’ve seen a solid recovery from the oil price slump, with forecasts for strong earnings growth plus big dividends to follow.

Unilever is the second biggest in the FTSE 100, and it’s just been carrying on with its decades long record of steady growth in earnings and dividends.

Next biggest is HSBC Holdings, which has been through a downturn. But since 2016, the Asia-focused bank has been seeing a sharp recovery in earnings, its dividends are yielding 6% and better, and the shares are trading on low P/E valuations.

That’s pretty much the general picture for many FTSE 100 companies these days — decent performance, low valuations, and strong dividends. And dividends for me are the true measure of the Footsie’s undervaluation, with overall yields from the index steadily climbing.

Great dividends

I’ve been following AJ Bell’s quarterly Dividend Dashboard, which tracks forecast yields (among other measures). At the back end of 2016, I thought forecasts of a total yield for 2017 of 4.2% were remarkable and indicated an undervalued market. It’s not that many years ago that I looked on yields of around 3% to 3.5% as being about par for the index.

And things have just got steadily better and better.

While the FTSE 100 has stagnated since then, yields continue to rise. In fact, the latest Dashboard from the final quarter of 2018 shows forecasts for 2019 dividends having soared to a whopping 4.9%. With inflation running at around 2% and cash ISA accounts struggling to get close to 1.5% in interest rates, that looks like a serious disjoint with reality.

Millionaire

Now, you’re unlikely to make a million in just a year, but listen to this…

One of my favourite bits of investing statistics is that if you’d invested £1,000 in the UK stock market in 1945 and reinvested all your dividends, according to the Barclays’ Equity Gilt Study, it would have grown to £1.8m over the next 60 years, even taking inflation into account.

I say make the most of the FTSE 100’s weakness while you still can.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Barclays and HSBC Holdings. 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

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »