How to invest in the FTSE 100

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. Tax treatment depends on your individual circumstances and may be subject to future change. 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 GBP are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in GBP terms. You could lose money in GBP 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.

Interested in investing here in the UK? If you’re considering buying and selling shares, then you’ll need to know about the FTSE 100.

In this guide, we’ll cover everything you need to know about how to invest in the FTSE 100. This includes what it is, info on the other FTSE indices, the top FTSE companies and how to buy and sell shares. And of course, the potential fees and other costs involved.

We’ll also show you how to swerve unnecessary costs when investing, by opening a Wise account to manage your money in multiple currencies. This helps you avoid unfair currency conversion fees when buying or selling shares, stocks and funds listed abroad.

What is a stock market index?

A stock market index brings together data from companies across industries to capture the performance of a selection of stocks. It moves up or down in accordance with the price changes of stocks in different companies.

It’s a valuable tool for investors, as they can use this data to compare current and past prices, and calculate market performance.

What is the FTSE 100?

The Financial Times Stock Exchange 100, commonly known as the FTSE 100 or ‘footsie’, is a stock market index focusing on the UK market. It captures the overall share price performance of the 100 biggest companies listed on the London Stock Exchange.

Why are indices useful?

Stock market indices offer investors an insight into the performance of a company’s stock, and of the financial health of the stock market in general.

Investors and brokers can use them to:

• Make general comparisons for the purposes of trading and investments
• Gain insights into market trends
• Measure returns and risks
• Help build portfolios that mirror past performance.

How does the FTSE 100 index work?

The FTSE 100 is owned and managed by index provider FTSE Russell (owned by the London Stock Exchange).

Every quarter, it lists the 100 largest companies on the London Stock Exchange by market capitalisation, choosing companies based on specific listing criteria.

When the quarter ends, FTSE Russsell looks at the market value of these companies and compares them to the companies on the FTSE 250. This is the index for the next 250 largest companies listed on the London Stock Exchange.

If a FTSE 250 company has become more valuable than one on the bottom of the FTSE 100 index, it is promoted and the lesser performing FTSE 100 company is demoted. This is known as a quarterly reshuffle.¹

What are the other FTSE indices?

Alongside the FTSE 100, there are also a number of other FTSE indices tracking the performance in stocks of other companies.

Let’s take a look:

FTSE 250²

The FTSE 250 is the next tier down from the FTSE 100, tracking the performance of the next 250 largest companies on the London Stock Exchange.

FTSE 350²

The FTSE 350 incorporates both the FTSE 100 and FTSE 250, so it’s a stock market index of all 350 of the biggest companies on the London Stock Exchange.

FTSE All-Share²

The FTSE All-Share index brings together all the companies listed in the FTSE 350 (so those in the FTSE 100 and FTSE 250) along with those in the FTSE SmallCap index. These are the companies that are too small to qualify for the top 350.

FTSE AIM UK 50 Index

The FTSE Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange. It caters to smaller companies, which are considered to be riskier and more speculative. AIM has a reputation as a less tightly-regulated market compared to the main FTSE indexes.³

The FTSE AIM UK 50 index contains the largest 50 eligible UK companies which fall into the AIM category.⁴

FTSE AIM 100 Index⁴

The FTSE AIM 100 is an index of the 100 largest eligible companies listed on the Alternative Investment Market (AIM). It includes international domiciled companies as well as UK companies.

FTSE AIM All-Share⁴

The FTSE AIM All-Share index includes all AIM-listed companies which meet the FTSE eligibility criteria.

What are the top companies in the FTSE 100?

The top companies in the FTSE 100 are industry-leading names that you might recognise. This includes the likes of Lloyds Banking Group, United Utilities, BT, Burberry, Vodafone, Sainsbury’s and Coca-Cola.

The index is broken down into industry sectors such as:⁵

• Aerospace
• Banking
• Construction
• Finance Services
• Media
• Retailers
• Software and computing
• Telecommunications.

If you’re interested in buying shares in a particular company, you can use the Wise stock ticker tool to search and see the latest prices.

You can even use it to check Wise share prices and decide whether or not to buy shares in Wise.

📚 Read: How to buy shares

How can you invest in the FTSE 100 index?

There are a few different ways you can invest in the FTSE 100 index. The most popular are to buy shares, but you can also invest through tracker funds and exchange-traded funds (ETFs).

Buying FTSE 100 shares

The simplest and most direct way to invest in the FTSE 100 is to buy individual shares of listed companies. You can do this on online investment platforms like eToro, Trading 212 or Interactive Brokers, or you can use a professional broker service.

If your shares go up in value, you’ll make a profit when you sell them. You may also receive dividends, which are linked to the quarterly or annual profits made by the company. But remember that shares can go down in price as well as up, so there’s a risk of losing money too.

Buying FTSE 100 tracker funds

You can also invest in a FTSE 100 index tracker fund, through the fund manager of an open-ended investment company (OEIC).

These companies pool investor money and spread it across a range of investments, such as shares in multiple different companies on the FTSE 100.

The benefit of this is that you’re not putting all of your eggs in one basket. If one company’s stock performs badly, increases in prices in others can offset any losses.

What are exchange-traded funds (ETFs)?

Another option is to invest in FTSE ETFs. These offer the chance to invest in a single package, made up of a range of bonds or shares traded on the stock market. ETFs can be bought or sold at any time during the day (unlike some other funds).

What’s the difference between an index tracker and a managed fund?

Index trackers are passively managed, while managed funds are - as the name suggests - actively managed by a fund manager.

Passive investments simply aim to replicate the performance of a market index (i.e. the FTSE 100). Active investments are valued, hand-picked and managed by a fund manager, who aims to beat rather than match market performance.⁶

How much does it cost to invest in a FTSE 100 fund?

The fees you’ll pay to invest in a FTSE 100 fund depends on which fund you choose, as well as what platform you use. But you can expect to pay:⁷

• An annual platform or account fee
• An ongoing fund charge (usually between 0.05% and 0.2%).

If you buy shares directly, you’re likely to pay an account fee as well as a fixed fee for each trade.

Investment platforms available in the UK

Here’s a quick look at the online investment platforms available in the UK for investing in FTSE 100 companies:

Platform	Fees
Trading 212	- No account fees - No commission fees8
eToro	- No account fee - No commission fees - Currency conversion fees apply (for all trades not in USD)9
IG Trading	- No account fees - Commission fees of £0 for US shares and from £3 for UK shares10
Interactive Brokers	- No account fees - Commission fees from 0.05% for UK stocks11

Pros and cons of investing in the FTSE 100

Pros ✅

• The FTSE 100 is the gold standard of the LSE indices, and the market is tightly regulated
• You may receive dividends from FTSE-listed stocks
• It’s easy to invest in ETFs and index funds, and online platforms make it simple to buy and sell shares directly.

Cons ⛔

• Limited choice and diversification of your investment - as the FTSE 100 lists only UK stocks
• You may have ethical concerns, as many FTSE 100 listed companies have links to armaments and fossil fuels
• If you choose a tracker fund, you won’t have the opportunity to beat the market. But for actively managed funds, fees can be much higher
• Like other investments, you can lose as well as make money.

Indices outside of the UK

Interested in diversifying your portfolio and investing outside the UK? Here are some of the world’s leading stock market indices to check out:

• S&P 500
• Dow Jones
• Nasdaq.

Don’t let currency conversion trip you up

In this article, we’ve looked at how to invest in FTSE 100 stocks here in the UK. We’ve covered everything you need to know to get started.

But if you’re planning on buying and selling stocks and funds listed abroad, there’s another crucial thing to consider - currency conversion.

Trade in different currencies and you could be hit with extra cost for cross border money transfer.

The good news is that you can use Wise to avoid hidden currency exchange markups. Open a Wise account to convert currency at mid-market exchange rates, for low, transparent fees*.

You may wish to hold your money in a Wise account until you decide to invest it in your chosen platform.

You can also use your Wise account to conveniently manage your money in up to 40+ currencies, sending payments worldwide a the mid-market rate for low fees*.

There’s even an extra feature, Wise Interest. With a Wise account you can earn returns on GBP, USD and EUR by opening a Wise account and investing in a fund that holds government-guaranteed assets. Capital at risk.

Open your Wise account

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. Tax treatment depends on your individual circumstances and may be subject to future change. The content of this article is provided for informational purposes only and is not intended to be, nor does it constitute, any form of personal advice.

Investments in a currency other than GBP are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in GBP terms. You could lose money in GBP 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.

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Sources used:

1. AJ Bell - how the FTSE 100 is calculated
2. Everyday Investor - definition of FTSE 100, 250, 350, SmallCap and All-Share
3. Investopedia - info on FTSE AIM
4. FTSE Russell - definition of FTSE AIM indices
5. SharePrices.com - FTSE 100 sectors
6. Vanguard - difference between passive and active investment
7. HSBC - guide to fees
8. Trading 212 - Trading 212 terms and fees
9. eToro - eToro trading fees
10. IG - IG share dealing fees
11. Interactive Brokers - Interactive Brokers commissions and fees pricing

Sources last checked on date: 23-Aug-2024