The FTSE 100 has fallen by more than 1.5% since the beginning of 2022, and the FTSE 250 is down by more than 13%.
So, with the UK’s biggest share indexes down, is now a good time to invest in order to pick up stocks at ‘knock down’ prices? Let’s take a look.
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How has the FTSE 100 performed so far in 2022?
The FTSE 100 began the year at 7,505 points, following a healthy end to 2021 where the share index gained almost 500 points during the final three months of the year.
Yet 2022 has seen the FTSE 100 struggle. Its value has fallen from 7,505 to 7,379, as of the morning of Thursday 3 March. That’s a fall of 1.63%.
The FTSE 100 witnessed its first slump of the year in late January. The share index fell from 7,585 to 7,297 between 20 and 24 January. The sharp fall was blamed on weak economic data and concerns surrounding possible interest rate rises.
Fast-forward to 23 February and the index had recovered to 7,498, suggesting investor fears had calmed somewhat. Yet by Thursday 24 February, when news broke that Russia had decided to invade Ukraine, the FTSE 100 quickly tumbled to 7,207. Investors were clearly concerned about the impact of the conflict on the global economy.
While the invasion continues, the FTSE 100 has since gained 150 points or so.
What about the performance of the FTSE 250?
The FTSE 100 comprises the 100 largest companies listed on the London Stock Exchange based on market capitalisation. The FTSE 250, meanwhile, comprises the 101st to the 350th largest companies. Its performance is often considered to give a better indication of the health of the UK economy as it includes companies in a much wider range of sectors than the FTSE 100.
So far in 2022, the FTSE 250 has fallen from 23,896 to 20,696. That represents a fall of 13% since the turn of the year.
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Is now a good time to invest in the FTSE 100?
Given the sluggish performance of both the FTSE 100 and FTSE 250, some investors will undoubtedly be looking to pick up bargains at ‘knock-down’ prices.
Yet investors who pursue this strategy are essentially banking on stocks recovering to previous highs. Of course, there are no guarantees this will happen. It’s also worth bearing in mind that the stock market is always ‘one step ahead’ of individual investors in that the chances of prices recovering are already ‘priced in’.
In other words, investors hoovering up stocks following recent falls are assuming the stock market has miscalculated the chances of any recovery. Investors who undertake this strategy and are proved right can indeed make big profits. However, investors who get it wrong can just as easily suffer big losses.
That said, recent falls in the FTSE 100 don’t necessarily mean that now is a good or bad time to invest. If you are looking to invest and aren’t looking to trade regularly, then investing with a long-term horizon in mind can be a winning strategy. That’s because returns from the stock market typically outperform returns from savings accounts in the long run.
How can you invest in the FTSE 100?
If you want to invest in the FTSE 100, you can buy an index tracker fund that tracks the performance of companies in the index. Alternatively, you can buy individual shares of companies that are members of the share index.
If you want to buy a FTSE 100 index tracker fund, then you’ll need to find an investing platform and choose the appropriate fund. Hargreaves Lansdown is a popular option due to its low fees.
Alternatively, if you want to buy shares in individual members of the FTSE 100 you may wish to open a share dealing account and then pick the companies you wish to invest in.
As with any investing, remember that the value of your investments can fall as well as rise. Past performance should not be relied upon to give an indication of future returns. If you’re new to investing, it’s a good idea to read The Motley Fool’s investing basics guide.
The post The FTSE 100 is down since the start of the year: is now a good time to invest? appeared first on The Motley Fool UK.
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