What are the 5 main reasons for investing in FTSE 100 shares?

Summary

• Stock markets have always attracted a large pool of investors
• In order to recognise quick gains, people often consider various lucrative options
• FTSE 100 shares provide several advantages over penny stock investing

Stock markets have always attracted a large pool of investors, largely due to the factor of quick gains as compared to other traditional assets including the bank deposits, debt products, government-controlled saving plans and certain other fixed-income securities.

The people who are highly intrigued by the idea of investing in shares, including the equity-oriented mutual funds and other market-tradable securities, typically develop an acquired likeability in certain industries and companies. The inclination of individuals towards stock markets and the thousands of listed companies have been evident from their respective shareholding.

In order to recognise quick gains on the investment, the beginners, or the people who have just started their equity market journey often consider various lucrative options that may seem to provide unimaginable returns in shorter durations.

In the process of selecting the companies that can provide a benchmark-beating return or even higher, people tend to sideline other crucial factors that remain critically important for the purpose of stock selection.

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Nevertheless, there is a large section of people who remain in a continuous lookout for opportunities in cheap stocks, conventionally known as the penny stocks. By investing in the so-called cheap stocks, individuals can own a bigger chunk of a company by purchasing a large number of shares. But the catch remains in the underlying value of the enterprise.

Most of the penny stocks may have seen some unexceptional gains in the past, but it doesn’t ensure that a similar movement will be repeated in the future. This is the case with almost every stock following which the experts advise to stay vigilant while selecting the stocks and look for fundamental values beyond the historical returns while shortlisting the number of shares in which you will be putting the money.

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The prestigious FTSE 100, the benchmark index of the London Stock Exchange, constitutes the biggest of the corporations operating in the United Kingdom. There are several added advantages of investing in the big heavyweight companies as compared to owning the shares of recently inducted firms on the exchange which have relatively very less market capitalisation.

We take a look at the five main reasons for investing in FTSE 100 shares.

1.      Own the biggest companies

Clearly, one can become the part owner of the biggest corporations of the UK by investing in the large-cap components of the headline FTSE 100 index. The index comprises 101 companies from different sectors and market share. The top five bigwigs include Unilever Plc (LON: ULVR), AstraZeneca Plc (LON: AZN), HSBC Holdings Plc (LON: HSBA), Diageo Plc (LON: DGE) and Rio Tinto Plc (LON: RIO).

Investing in blue-chip companies is typically considered safe as compared to investing in the penny shares, mainly because the heavyweight companies always remain under close surveillance by the capital market watchdog, the Financial Conduct Authority (FCA), the Bank of England, and the stock exchange itself.

2.      Participate in UK’s growth story

By investing in the large-cap shares of the FTSE 100, you can be a part of the UK’s growth story as most of the corporations included in the key index have operations in almost all the big economies across the world. With the rising gross domestic product (GDP) of the country, increasing spending capacity of Britons, improved healthcare facilities, enlarged basket of food and drinks that can be exported, a deep rooted footprint of UK-based conglomerates, continuously expanding global clientele and immensely diversified portfolio of offerings, the businesses are poised to grow in the upward direction. The same will be reflected through the shares, sooner or later, and there will be a subsequent affect to your respective holdings.

3.      Constant returns

There have been several rough years for the benchmark FTSE 100, when the index has closed with a yearly dip of more than 10 per cent. However, at the same time, not all of the components have dropped. Inferentially, there are several companies that clinically outperform the index year-after-year.

In the series of the last five years, several heavyweights have vastly outnumbered the growth of FTSE 100. These may be different companies in different years, but the fact of constant return remains there. Therefore, investing in FTSE 100 shares provides you with a conclusive amount of certainty.

Even in the pandemic era, almost every corporation took a severe hit during the stock market crash triggered by the jittery-fuelled panic. But, there have been certain shares that bounced back very sharply in the stretch of six to nine months, surpassing their respective pre-pandemic peaks.

4.      Sector specific potential

Going by the industries, an individual can invest in the market leader of a specific sector which is likely to outperform in the upcoming years. It can be a company from healthcare, technology, automobile, green energy, mining, banking, investment management, consumer durable, retail etc.

People who are confident about a certain sector can look for companies that have a stronghold and dominance across the domestic, as well as international market, if applicable. You can easily find the market leaders of several sectors in the 101 components of the FTSE 100. 

5.      Build retirement corpus

Investing in FTSE 100 shares can suffice the purpose of long-term investment and other large-quantum objectives. Day traders, certified technicians, trained professionals and other experienced market participants can comfortably bear the intraday losses and can continue to trade heavily on a daily basis, but retail investors can’t afford to lose money in such quick successions.

All the retail investors, as well as the people with less money can certainly consider building a retirement corpus by investing in the large-cap shares of FTSE 100. With this, an individual can enjoy the capital gains over the upcoming stretch of upto 15 years, alongside the benefit of corporate actions including the periodic dividend distributions, stock splits, bonuses, rights issues etc.