If you are investing in the stock market then how are you doing it and where are you putting your money? For many savers, the answers to those questions will be similar. Many ‘every day’ savers, who have been able to venture beyond the annual Cash ISA have used the Stocks and Shares ISA component to venture into the stock market. These savers have tended to draw on FTSE 100 based products for their portfolio, with many of us having the feeling that investment in the largest companies carries the least risk.
However, it may well pay us to think more widely than just the FTSE 100. While the FTSE 100 has been up and down several times over the last 15 years, overall the effect of such falls and rises are that the market as a whole has flatlined. Whereas the index of the next 250 largest companies in the UK – the FTSE 250 – has soared.
In December 1999, the FTSE 250 stood at 6,444 – fifteen years on it has passed 16,000. According to Hargreaves Lansdown, someone investing £10,000 in a FTSE 250 tracker in 1999 would have more than doubled their money to £23,000 over the period and if they had reinvested the dividends, they would have more than tripled their money, to £36,000.
The reason the FTSE 250 has performed better than the FTSE 100 is that it is more closely aligned with the fortunes of the UK economy. Around 75% of the earnings of FTSE 100 companies are made overseas – with many having just a listing and an office in London.
We hear a lot about the difficulties associated with the global economy. Is there a strong argument for being a bit more insular and parochial with our investments in the stock market – looking at the FTSE 250 as a collective of businesses more representative of the home economy? The test for us may be how confident we are in the UK business and economic performance over the next year or so. Are we really ahead of the field and can we stay there?
Sources: www.bbc.co.uk (Article: January 2015)
