Why I’m buying the FTSE 100 now

Scene depicting the City of London, home of the FTSE 100

According to IG, between 1984 and 2019, the FTSE 100 rose by 654%. And on a total return basis, the value increased by 1,377%.  Annualising the figures reveals the yearly return for investors over the period was 5.8%, and 7.8% with dividends reinvested.

And that’s why one of the long-term investments in my portfolio is a FTSE 100 tracker fund. And, naturally, I’m holding the accumulation version of the fund rather than the income version so that the dividends are automatically reinvested.

Handling the FTSE 100’s volatility

But what’s the best course of action in uncertain times like now when the index is so volatile? For me, there’s only one answer — keep investing. So my monthly contributions will keep dripping into the FTSE 100 tracker fund however low the index happens to fall.

And in behaving like that I’m following the advice of perhaps the greatest investor of them all, Warren Buffett. In an interview in February 2020, when the stock market was crashing because of coronavirus, he repeated his long-held view. When asked about falling stock prices, he said: “That’s good for us actually. We’re a net buyer of stocks over time.”

Isn’t that a bit odd though? Surely if we buy stocks and make investments into tracker funds we then want them to go up in price to provide us with a positive return. And, of course, that’s true over the long term. But Buffett has always had an ear to the ground for a bargain. Buying the shares of good businesses at fair valuations is a strategy that’s made him billions.

He expanded the point in the CNBC interview, saying: “[It’s] just like being a net buyer of food — I expect to buy food for the rest of my life and I hope that food goes down in price tomorrow.”

And the approach works with my FTSE 100 tracker investment as well. If the index falls, my fixed monthly investment buys more. But, over the long haul, the returns from my investment could be worth the short-term ‘pain’ of lower prices.

There’s always something to worry about

Meanwhile, there’s rarely a relaxed and rosy picture to look at from the perspective of being an investor. It seems like there’s always something to worry about, if worry I must. Right now, the anxieties of the day include coronavirus, inflation, asset bubbles and other things. But I reckon the key to capturing the bigger, long-term returns potentially available from the FTSE 100 is to keep up my regular investments, no matter what happens to the index.

Of course, there’s no guarantee the FTSE 100 will deliver returns as large as it has before. Perhaps the first 35 years of its life were an exceptional period. And my plan could fall flat if I end up cutting my investment horizon short. Over perhaps five years or so, I could easily lose money overall.

But as a long-term strategy, I’m sticking with it no matter what the Footsie does next.

The post Why I’m buying the FTSE 100 now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the 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.