According to a research conducted by AXA Self Investor, a passive investment in the FTSE 100 over a 10-year period has a 95% probability of being successful over the long term. The average return was a 70 percent increase in value (assuming dividends were reinvested). The research lasted two decades, beginning in February 1996, and included two of the largest stock market catastrophes in history: The Dotcom Bubble and the Global Financial Crisis of 2008-2009.
The Dotcom bubble was a time in which technology businesses in the United States saw significant growth as a result of the internet. Enterprises that did not make a profit or even generate revenue were valued at exorbitant levels on the premise that the internet will make these companies wealthy in the future. The bubble finally burst as a result of excessive speculation, resulting in one of the worst stock market recessions in recent history.
The subprime mortgage market in the United States was the catalyst for the 2008 Financial Catastrophe, which culminated in the fall of Lehman Brothers, which triggered a worldwide financial crisis. It was widely regarded as the greatest financial catastrophe since the Great Depression (Wall Street Crash of 1929). The FTSE 100 had the highest 10-year return of 154 percent, and the lowest 10-year return was a loss of 14.5 percent throughout that time period. From February 1999 (just before the Dotcom bubble burst) until February 2009, this was the time period under consideration (when the world was deep in recession from the 2008 Financial Crisis). In contrast, just six out of every 120 potential periods resulted in a losing period.
There were no extra deposits made throughout any of these years, such as dollar-cost averaging (DCA). This is an investing technique in which the same monetary value is purchased on a regular basis in order to get more exposure while also reducing the effect of volatility on the overall purchase. When prices are low, the investor is able to purchase more units for the same amount of money, which is beneficial.
It should be noted that a contrarian approach is another option that might be employed and was not included in the research. Whenever an investor notices that prices are low, he or she may opt to take advantage of the situation by acquiring a greater number of units than normal in order to drive the average cost further down.
Despite the fact that there is no certainty that an index will recover to its prior high, contrarians have sometimes been handsomely rewarded for purchasing index weakness.
During the early 2000s, we saw the deflating of the Dotcom bubble, which culminated in the Great Financial Crisis of 2007, which culminated in the market reaching its bottom in 2009. Dividends reinvested in the tracker have enhanced its total return even if the index has tended to move sideways.
What is the Best FTSE 100 Tracker to Buy?
The iShares Core FTSE 100 UCITS ETF is, in my view, the finest FTSE 100 tracker to purchase (ISF). Investors Chronicle, a publication of the Financial Times, recommends this. The yearly fee for this ETF is under 0.07 percent, allowing investors to acquire exposure to the top 100 firms in the United Kingdom at a very low cost. Because it loans out assets it owns to short sellers for cash, the iShares Core FTSE 100 UCITS ETF (ISF) may generate additional returns for investors.
Investors in this ETF also benefit from dividends provided by the FTSE 100 index, which is comprised of industry giants and more reliable companies. Dividends, on the other hand, are never guaranteed and may be reduced in periods when corporations are reducing expenses. From the iShares website, below is the performance of the iShares Core FTSE 100 UCITS ETF:
The fund is just a few basis points away from the benchmark FTSE 100 index, but it has a 0.09 percent annual fee. Because the iShares Core FTSE 100 UCITS ETF (ISF) has a low expense ratio of 0.07 percent, it is my top option. Both of these ETFs may be purchased in Individual Savings Accounts (ISAs), which means that any gains earned are tax-free. Some use IG Index and Hargreaves Lansdown for ISAs and investment platform.
2. Tracker Fund for the FTSE 250 Index
The FTSE 250 is a stock market index that tracks the performance of the next 250 largest companies on the London Stock Exchange in terms of market capitalization after the FTSE 100. It is based on market capitalization and is calculated using the FTSE 100 as the benchmark. It is common for stocks to be downgraded from the FTSE 100 and then be promoted to the FTSE 250, and vice versa. In addition, the FTSE 250 is a more domestically oriented index than the FTSE 100.
While there are numerous firms that operate internationally and are multinational organizations (such as Aston Martin, Britvic, Dominoes, and PZ Cussons), there are also a large number of companies that operate entirely in the United Kingdom with little to no exposure to the rest of the world.
Retailers (Dunelm, Dixons Carphone, WH Smith, B&M, Marks & Spencer), entertainment firms (Cineworld, Domino’s, Gregg’s, 888, Wetherspoon), food and beverage industries (Britvic, Tate & Lyle, Barr), and many more types of enterprises are represented within the FTSE 250.
The FTSE 250 has historically outperformed the FTSE 100 because it has a greater number of firms that are smaller and so have the ability to develop more quickly. These smaller enterprises, on the other hand, are often less established than the FTSE 100.
What are the Benefits of Purchasing a FTSE 250 Tracker?
When it comes to investors seeking UK exposure who desire bigger returns than the FTSE 100 but are also ready to incur more risk in exchange for those possible rewards, a FTSE 250 tracker is an excellent option for them to consider. The FTSE 250 has typically outperformed the FTSE 100 in terms of returns. While the past does not guarantee future performance or profits, smaller businesses are frequently more responsive to market changes and opportunities. However, since the FTSE 250 index includes a large number of firms, the risk is well-diversified over the whole portfolio of 250 businesses.
How Much Money can I expect to Earn if I Invest in a FTSE 250 Tracker?
It has historically been more profitable for investors to invest in the FTSE 250 than the FTSE 100. This is due to the fact that smaller firms in the United Kingdom are highlighted, and as a result, they are more concerned with growth than with dividend payments.
The returns are more volatile than the FTSE 100, both to the upside and the negative, as can be seen in the chart. For investors that are looking to the long term, this may be an acceptable risk in the pursuit of greater returns.
Returns in contrast to the benchmark are quite similar for both funds. Despite the fact that Vanguard charges just 0.1 percent yearly fees, this compares to the iShares’ continuing fee of 0.4 percent for both products.