FTSE 100 Performance 2006

ryansace

Does anybody know where i can find a review, or the performacne of how the FTSE 100 index has performed last year (2006).
I am just curious to know how well/bad it is doing, and whether it is a risky investment or not.

Thank you,

Ryan

dunstonh

ssuming you mean FTSE100 tracker.

Its medium/high risk (7 out of 10 on the often mentioned crude risk scale).

Its a rubbish index to follow and has been for many years. When you look at the UK All companies sector, the FTSE100 trackers have not made the top half of performance in over 13 years. In other words, they have performed below sector average each and every year for the last 13 years.

The risk vs reward potential for FTSE100 trackers is limited and undesirable... at this time. It can change though.

going2die_rich

If you just want a simple graph to look at, go on the bbc news website. Click "Business" on the left hand column. Then if you look on the right it's got the FTSE value for now. If you click it you can access it which will allow you to see it over a 12 month preiod in graph form.

Gives you a quick snapshot of whether it's been going up or down in average.

The problem is, the FTSE along with any real shares investment is a long term investment, not a single year.

Don't know where to find out more than last years performance (sorry)

Cannon_Fodder

try http://www.moneyextra.com/stocks/LSE/chart/UKX

use the Time Period drop down to change number of years in view...

ryansace

Thanks, that helped quite a bit. I'm just wondering, as investing in small companies is considered a risk, is FTSe 100 risky as well.

dunstonh

UK Smaller companies are higher risk than FTSE100. Typically between 8-10 on that scale.

If you want an overview from the regs here, then post a bit more about what you have and we will give opinions and views.

EdInvestor

I'm just wondering, as investing in small companies is considered a risk, is FTSe 100 risky as well.

Not nearly as risky.Size matters

StevieJ

http://uk.finance.yahoo.com/q/bc?t=my&s=%5EFTAS&l=on&z=m&q=l&c=&c=%5EFTSE


Ftse all share compared to Ftse100 last five years.

ryansace

Hello
Thanks for all the help

ryansace

So how much of a risk would you say it is? What are the advantages/disadvantages of investing?

bowlhead99

I should apologise that this is a long way from being a short punchy answer - I wrote most of it years ago for a relative and have copied chunks from an email I wrote to someone else recently - but hopefully most of it is still valid here... :

- - -
If you save money in a bank account you'd like the interest rates to stay nice and high so you make some money. But if they don't, you don't lose any money (you might of course lose in real terms if inflation goes up, but you still have the same number of ££ as you started...). The purpose of bank accounts is to store cash so you can use it later, but not to 'make money'. You are not working or risking your money so you don't deserve to make anything really.

Whereas if you invest in a share-tracking index you hope you make some money this year, more than a saving account- but if the index does badly, you might lose some money instead. In the long term you should win more, or more often, than you lose - because the economy in the long term is getting bigger not smaller and you are investing in a cross-section of the economy.

The important thing is that if you know you need £x of cash next year, or think you *might* need it next year, be careful about putting it somewhere where it might go down in value.

But if you are happy you want to invest in something to do with the stock market, you have some choices, for example:

a) Invest in a big basket of every single share in the world.

b) Invest in a big basket of every share in a particular part of the world. Riskier, because your chosen area might go down even though USA and Far East go up, so you can lose more than (a) - but of course better rewards are available. If USA and Far East does well while Europe and UK do badly, the average might be 2% growth but you might be the lucky person picking Far East and get 5 times that.

c) Invest in a big basket of every share in a particular industry. Same issue as above - riskier because you are picking 1 area (eg telecoms) versus all the others you could have (banking, media, mining, retail, etc etc) and all areas could go up or down in a particular year. If oil price is high the drillers do well but the manufacturers have high energy prices and do badly, those sectors offset each other. But if you pick one sector or the other you could win or lose much more than the average, hence its riskier.

d) Invest in a smaller basket of shares in a geographic region or sector, but ones you particularly like after researching them- and picking large corporations in the hope they don't go bust. If you (or in reality the fund manager you have chosen) are good you might make more, or in a bad year lose less, than the economy averages. But you are not as diversified and there might be fraud in one company, high materials prices at another, low industry demand in another, a new competitor for another, adverse leglislation or taxes affecting another, all driving down the value of your shares and before you know it you have lost a big chunk of your cash even though the other half of your shares did better than the average.

e) Same as above but with smaller companies which carry more risk but have better potential to grow (more reward)

f) just pick one share you like and invest in that single company. Bigger ones are less likely to wipe out than smaller ones, although the small ones might turn into big ones given a lot of time, whereas the big ones with 50% market share can never triple it to 150%, etc etc. Again lots of trade off risk vs reward in terms of how much money might be out there to make, but whether it goes up or down in your chosen timescale is only at best educated guesswork.

This is a sliding scale with F being very risky and even option A being a long way from risk-free.
- -
OK so to answer your question should you try and track the FTSE 100, the biggest publicly listed companies in the UK?

Is it risky? Its not so much a risk that you will lose everything, as the companies making up the 100 are big companies less likely to go bust than smaller companies.

But to track the index, most of your money gets invested in the very biggest ones in the index, so most of your money is 'exposed' to only a few industries or market sectors (eg, oil and gas, banking etc). If those sectors do well due to industry factors then great. If they don't the FTSE 100 won't. It DOES represent more than half the market value of all UK shares you could buy - maybe something like 70%. But when the top 3 HSBC, BP and Shell are worth over £100bn each, and the bottom 3 probably under £10bn between them - how much of every pound invested in a FTSE tracker will get invested into the smaller companies in the 100?

While it might sound 'safe' to invest in the biggest companies there is no guarantee that they will go up in value, can easily go down, even over a period of a few years - look at historic graphs to see. You started off by saying 'how well is it doing?' - the answer is that the ftse100, and other UK share indices, have done very well in last 3 years, but things that can drive it up one period (e.g. oil & minerals prices, merger mania) will drive it down if they aren't there next period. And of course buying something that's just "had a good run" is not buying something cheap.

What you can say is that it's less risky as a long term buy than buying fewer smaller shares. I could name 10 AIM shares that may double or triple or more in the next year. But any one of them I picked might become extinct in the same time period. With the FTSE 100 you know it won't be at 12000 next year but it won't be at 0 either. It is an index of a few monster shares which are thought to be slower moving and less risky than others. But they are still risky and if the fact that a blue chip company like Sainsbury's share price can go up from 300p to 500p in the last year impresses you, you should look back at the chart for 2002 when it went from 400p to 250p and realise that your money is not safe with any share investment in the short term.

To summarise:

Good:
Exposure to a number of established, blue-chip companies - lower risk of ruin than investment in smaller shares
Long term expectation of growth.
No dependence on skill of an advisor picking the stocks to buy and sell as its all automated. Hence no massive fees and no risk of staff turnover at the investment manager.

Not good:
Disproportionate investment in few companies in few sectors, not representative of the full range of large UK companies.
Not a short term option, and not as cheap to buy now as last year.

It comes down to what you want to invest in and what are you already invested in. If you don't have a lot of exposure to oil,mining and financial services and want to share in the fortunes of the biggest companies in the country that operate in these areas, go for it. There's nothing wrong with using a tracker to allow you to be a less 'active' investor as long as you are happy with what it will be invested in.

"FTSE 100" is a phrase people hear on the news every single day so they think its the first thing they should buy for general market exposure, but if this is your first dabble in the stock market this is not the most sensible basket to put your eggs into.

IMHO!;)