- Would you like to invest in the FTSE 100, a UK stock market index of 100 leading companies?
- Learn how to invest in FTSE ETFs, index funds, and shares.
- Compare FTSE 100 online brokers and set up your first order.
- Get the pros and cons of investing in the FTSE 100.
Most people with even a passing interest in the stock market have heard of the FTSE 100, since it’s a barometer for the state of the UK market. Commonly known as the ‘Footsie’, it’s an index composed of the shares of the 100 largest UK companies by market value (i.e. the total number of shares issued in each company, multiplied by the share price). Its full name is the Financial Times Stock Exchange 100 Index, and its value is updated every second during the operating hours of the London Stock Exchange (LSE).
The FTSE 100 is maintained by the FTSE Group, a subsidiary of the LSE. Since it's just an index, not a company, you can’t buy shares in the index itself. But there are several ways to invest in the FTSE 100 and become a part-owner of blue-chip companies.
Before you start, we’ve compiled some details of the types of FTSE 100 investment available to you, along with a list of online share brokers. Read on for the pros and cons you need to be aware of.
This is your complete guide to investing in the FTSE 100 from Canada.
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What can you invest in?
Ways to invest in the FTSE 100
Investors in the FTSE 100 can invest in the index with Exchange Traded Funds (ETFs), index funds, and buying shares in individual companies.
Exchange Traded Funds
Exchange Traded Funds (ETFs) are investments which pool cash created by selling units in the fund, and invest it in a basket of securities – such as shares and fixed interest bonds.
Each ETF aims to track a particular market index, industry, commodity or investment strategy.
ETF units can be bought and sold on the stock market in the same way as company shares. The unit prices change constantly during the trading day, but generally show less fluctuation than individual company share prices. This makes them a way of spreading risk. Because they are less risky than individual shares, an investment in ETFs is less likely to record significant losses or gains in the short term. Investing in ETFs is a strategy for long-term investors.
Actively managed ETFs which may invest FTSE 100 companies in — but do not exactly track the FTSE 100 — include:
- Invesco FTSE RAFI UK 100 (LON: PSRU)
- iShares UK Dividend UCITS ETF (LON: IUKD)
- Lyxor Core UK Equity All Cap (DR) UCITS ETF – Dist (LON: LCUK)
An index fund is a type of ETF which aims to exactly mirror the performance of a market index by investing in all the shares in the index in the same proportion as the index, usually weighted by market capitalization. This means that it is a passive fund, unlike actively managed ETFs which may not follow the index exactly.
Passive funds will usually have lower management fees than actively managed ETFs.
Examples of FTSE 100 index funds:
- Vanguard FTSE 100 UCITS ETF (LON: VUKE)
- Lyxor FTSE 100 UCITS ETF (LON: L100)
- iShares Core FTSE 100 UCITS ETF (LON: CUKX and ISF)
- Invesco FTSE 100 UCITS ETF (LON: S100)
Individual company shares
Another way to invest in the FTSE 100 is to select several of these top 100 companies and invest in them directly.
It would be too time-consuming and expensive to attempt to invest in all of them, but the list includes many household names, like Barclays (LON: BARC), HSBC (LON: HSBA), BT (LON: BT.A), Unilever (LON: ULVR), AstraZeneca (LON: AZN), and TESCO (LON: TSCO).
However, the fact that FTSE 100 companies are large and well-known does not protect you from the increased risk of investing in individual shares because the success of your investments depends on the fortunes of just a few companies rather than a diversified fund.
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Where to invest in the FTSE 100
Looking for Canada's best stock trading platform? Compare options with Finty.
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How to invest in the FTSE 100
Step 1: Choose a broker
There are hundreds of online share trading platforms to choose from. When comparing options, check their brokerage, cash withdrawal and activity fee amounts, as well as the tradable securities offered (which should include ETFs and shares).
Whichever broker you choose must have access to the LSE. For the sake of having all your investment activity in one place, you may also want access to US and European share markets from the same broker.
Some brokers offer commission-free trades on ETFs. If you’ve decided to invest in shares, look for a broker offering fractional shares, since many FTSE 100 companies have astronomical share prices.
Step 2: Decide how much to invest
Only ever invest what you can afford to lose because share markets are volatile.
If you can’t withstand losses in the short term, it’s best to wait until you can, or plan to invest for the long term only.
Step 3: Transfer funds to your account
Add funds to your trading account with a bank transfer, the most commonly accepted method.
It may take some time for funds to clear before you can start trading. Note that your broker may require a minimum deposit amount.
Step 4: Choose between shares, ETFs and index funds (or a combination of them)
ETFs and index funds are diversified across a range of companies, so they typically experience lower price volatility than individual company shares and can be better for long-term investment.
- Short-term investors hoping for quick capital gains (but also prepared for losses) may prefer to buy shares.
- ETFs can often be traded commission-free.
- Index funds mirror the market, so their value rises and falls in line with the broader market.
Step 5: Configure your order
Depending on the broker you use, you can choose from many different kinds of order.
A market price order is the most straightforward, requiring virtually no setup. Once executed, you’ll get shares at the next available market price for the share or fund unit.
If you have a specific strategy, you’ll need more options in terms of order configuration. Some brokers have highly customizable orders that can be triggered by events, meaning you can buy or sell when your chosen share or fund hits a price target.
Step 6: Place your order
When you’re happy with all of your decisions, submit your order to be executed.
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Pros and cons
- Mirror the market. When the FTSE 100 goes up, the value of your investment increases.
- Focus on blue chips. FTSE 100 companies tend to be cash-rich and quality-oriented, which means they are likely to pay higher dividends and hold up better during economic downturns.
- Risk spreading available. Diversify your portfolio by choosing an index fund or other type of ETF to reduce volatility.
- Fractional shares. Own a portion of a company you couldn't otherwise afford to invest in, by buying fractional shares or ETF units.
- Mirror the market. When the FTSE 100 goes down, the value of your investment decreases.
- Lots of research and price monitoring time required if you invest in individual shares.
- Losses are always a possibility. Although shares and ETFs tend to perform well as a long-term investment, both of them can lose value significantly in the short term.