FTSE 100 hitting record highs – should you invest?

The FTSE 100 has been increasing in value since 16 April, hitting a series of all-time highs this week.

The value of the FTSE 100 peaked at 8,199.95 on Tuesday (30 April), but what does that actually mean?

Here, Which? cuts through the jargon and explains how the FTSE 100 works, what's behind the record highs and how to invest.

Please note: the content in this article is for information purposes only and does not constitute financial or investment advice.

What is the FTSE 100?

The FTSE 100, short for the Financial Times Stock Exchange, is an index of the largest 100 companies registered on the London Stock Exchange.

The index covers a broad range of industries – the largest three are pharmaceutical company AstraZeneca, high-street bank HSBC and oil giant Shell.

Some big companies don’t count as part of the FTSE 100 because you can’t buy shares in them, for example John Lewis Partnership and Specsavers.

There is also the FTSE 250, which is the next 250 largest London Stock Exchange-listed companies, which includes other well-known brands such as Greggs and ITV.

The new peak of the FTSE 100’s value means that the combined value of all the companies in the index has increased. Alhough it doesn’t mean that every company in the index is doing well. In fact, a relatively small proportion of high performing companies could create an overall increase.

• Find out more: beginner's guide to investing.

Why has the FTSE 100 hit an all-time high?

The prospect of reductions to the Bank of England’s base rate in the year ahead, and consequently lower interest rates, has made investors more confident in buying shares in UK companies.

Shares have also benefitted from the relatively low value of the pound, which means that value from business done outside of the UK is higher as exports are cheaper.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says: 'The fresh pulse of positivity comes as ceasefire negotiations in the Middle East continue and a more optimistic sentiment washes over the London market. 

'Even the surprise resignation of HSBC boss Noel Quinn, didn’t stop the banking giant from posting share price gains.'

• Find out more: how to invest in shares.

Sould you invest in the FTSE 100?

Despite reaching an all-time high this week, the FTSE 100 has consistently grown at a slower rate than some of its international counterparts – most notably the S&P 500, which is an index of the 500 largest public US companies.

Over the past five years, the FTSE 100 has grown by 10.28%, meaning if you put in £100 in 2019, you’d have £110.28 now (not including dividends, which are a regular pay-out of profits). In contrast, if you’d put £100 in the S&P 500 in 2019, you’d have £172.24 now (not including dividends) as it’s increased by a huge 72.24%.

That being said, the past is not a guaranteed indicator of the future, so it’s entirely possible that this pattern will change.

If you only invest in the FTSE 100, though, you’ll be much more vulnerable to shocks that specifically affect the UK economy, for example a recession. 

To soften the impact of any individual events, it’s important to diversify your investments. This means if you invest in UK stocks, you should consider both stocks elsewhere in the world and different types of investments, such as bonds, which tend to increase in value in times of high interest rates and recession, which negatively affect stocks.

• Find out more: how to balance your investment portfolio.

How do you invest in the FTSE 100?

If you want to invest in the FTSE 100, you can do that either yourself or through a financial adviser. 

If you invest yourself, you’ll need to open an account with an investment platform. There are a range of accounts to suit different needs, but most platforms offer at least a stocks and shares Isa and a general investment account.

A general investment account is a basic account that will allow you to invest, while a stocks and shares Isa is the same, but tax-free with a limit of £20,000 you can put in each year.

To invest in the whole of the FTSE 100, you’ll need to pick a tracker fund or trust. There are several different funds that all track the same index, so it’s worth shopping around to find one that doesn’t charge you too much in fees.

If you want to pick specific stocks in the FTSE 100, make sure you do your research first, as investing directly in shares is riskier than investing in funds.

Some investment platforms only offer funds, while some only offer stocks, so be sure to check our reviews to see what’s on offer and find the best platform for your needs.

• Find out more: best investment platforms in the UK 2024.