The FTSE 100 index reached a record high – why is this and what should you do if you’re an investor?

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The FTSE 100 index reached a record high – but what does that mean for you if you already own shares or if you’re thinking of investing?

The FTSE 100 index reached a record high

The FTSE 100 index, which is the index of the UK’s 100 biggest companies, reached a record high today after 11 days of rises. It is currently at 7,328. That’s a rise of 5% in the last three months and over 20% in the last year. But what does that mean if you’ve already invested or you’re thinking of investing in stocks and shares and why has it risen?

Why the FTSE 100 index reached a record high

There are several reasons why the FTSE 100 index reached a record high. It is partly because the pound has fallen against the dollar, but it’s not the only reason.

  • Low savings rates: the fact that savings rates are so low is pushing a number of people who would rather keep their money in savings, to invest in the stock market.
  • The biggest companies in the FTSE 100: There are several large oil companies and mining companies in the FTSE 100 index. These companies earn most of their revenue in dollars and so are benefiting from the fall in the pound. The pound’s fall against the dollar means that, for example, $1,000 earned in January this year is worth more in pounds than than $1,000 earned in January 2016.
  • Donald Trump’s election: The election of Donald Trump as president of the United States has further boosted mining and oil companies (because of his outlook on energy and climate change). The fact that he has also said he’s keen to spend on infrastructure means other companies, such as those involved in construction, are also more optimistic.
  • Rising inflation: this is make investing in shares more attractive than investing in some other assets, such as bonds. Although inflation is currently at low levels, there are indications that inflation could start to rise in the next few months. If that happens, it would make bonds less attractive for investors to keep.

SAVVY TIP: Bonds are simply IOUs for loans. You can buy bonds for company loans or loans to the government. Bonds pay a fixed interest rate, so if inflation falls, it means the fixed income from bonds is more attractive. But if inflation rises, this fixed interest is less attractive.

What does the high value of the FTSE 100 index mean for me?

If you have already invested:

If you’re already invested in something like stocks and shares ISAs or have a stock market linked pension, the rise in the FTSE 100 index should be good news for your investments. However, it’s the long term performance of any investment that matters, not short term ups and downs.

Also, it will depend on where you have invested your money (for example in the UK or largely overseas). That’s because the stock market index in that country may have risen by more or less than the FTSE 100.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown says: It’s important not to get too carried away with the recent run of good form. Over such a short time frame it’s best to take stock market movements with a pinch of salt, whether they are good or bad.”

If you haven’t yet invested:

Don’t be tempted to invest ‘because’ the stock market is high. For some reason, a rising FTSE index often results in people piling money into share-based investments. But you wouldn’t buy a dress, washing machine or computer just because it was more expensive now than a few months ago, would you?

You should only invest if you are comfortable with the risks and can leave your money invested for at least five years. I personally think that ten years is a better minimum time.

Photo: London Stock Exchange website.

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What is the FTSE 100 index?

What is a stock market or stock exchange? How can you invest?

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What are mini bonds and should you invest in one?

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