4 tips to long-term investing in cheap FTSE 100 stocks

FTSE 100 (INDEXFTSE:UKX) stocks have been enjoying an upward trajectory since the March market crash, but there are still bargains to be found.

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.

The stock market is garnering increased attention as global economies venture into uncharted territory. Since the March market crash, investors and analysts alike have been speculating whether the stock market will crash again. There have been fluctuations, but the government subsidies appear to have kept things under control. Does this mean it is a good time to invest in the stock market? For many, I think it could be an excellent time, particularly for cheap FTSE 100 stocks. However, you must weigh your personal circumstances and financial goals.

Choosing your risk level

Investing in the stock market carries an element of risk for everyone, but some shares are riskier than others. The simplest way for beginners to determine how risky stocks are is to consider the UK markets. I consider the FTSE 100 the safest because it contains the top 100 companies by monetary value. The FTSE 250 comes next and AIM is much riskier and generally to be avoided by newcomers to stock market investing.

However, even FTSE 100 stocks carry risk and as a shareholder, you should be prepared for this. Taking on too much risk will lead to sleepless nights, but if you play it too safe, you might not reach your financial goals. If time is on your side, you may like to diversify your portfolio with a selection of asset classes to reduce your risk and increase the likelihood of making more money.

Volatility is inherent

As anyone watching the stock markets can see, fluctuations are par for the course. Some stocks have been going up and down like yo-yos lately. Watching too closely can make you confused and likely to panic. If you are a worrier and do not think you can cope with the day-to-day volatility, then you may prefer something less risky like index funds or bonds. However, risk and reward generally correlate, and history has shown us that over time stock markets tend to go up, not just recovering losses but also reaching new highs.

The power of compounding

Compounding is a powerful force in value investing. By reinvesting your returns, such as the income you receive from dividends, you boost your earning power. This power also comes from topping up your investments regularly, for example, through a monthly direct debit into a Stocks and Shares ISA. Increasing your pot by resisting the temptation to withdraw any gains, means your investments grow at a faster rate.

Staying invested

Do you have the drive and willpower to stay invested while ignoring the daily fluctuations in favour of the bigger picture? If so, I think value investing for the long-term seems like the sensible option. It has worked for billionaire Warren Buffett for decades and for many others following his playbook. Global uncertainty has caused many stocks to drop below their intrinsic value, meaning there are cheap FTSE 100 shares available today. You just need to choose companies you believe to have the staying power to go the distance. 

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.

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

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »