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Investing in well-chosen individual stocks can allow investors to beat the market. However, they could also consider allocating a portion of their portfolios to a FTSE 100 tracking background.
Through exposure to Footsie as a whole, we can benefit from diversification into some of the UK's largest companies. These include people like AstraZeneca, Shelland HSBC, among others. Additionally, many brokers offer very competitive rates for investing in index funds.
But how did the FTSE 100 index perform last year? Did other major stock indices produce better returns? And what could 2024 have in store for us?
Let's take a closer look.
return 2023
There are several FTSE 100 tracking funds available to UK investors. A good example is Vanguard. FTSE 100 UCITS ETF (VUKE).
In early 2023, you could have bought 30 units of this exchange-traded fund (ETF) for £33 each. My total cost would have been just under four figures – £990 to be exact.
Today the price of a single unit is £33.60. Consequently, my initial investment would be valued at £1,008 today.
However, a large portion of the FTSE 100's historical returns have come from distributions to shareholders. Adding dividends to the equation brings my total return to £1,046.51.
<h2 class="wp-block-heading" id="h-lagging-overseas-stocks“>Lagging foreign stocks
It's fair to say that 2023 was not a spectacular year for the FTSE 100. Of course, investors would have made a positive return. However, at less than 6%, it barely eclipses what a cash savings account could have offered.
The contrast between Britain's blue-chip index and major US benchmarks is stark. Both S&P 500 and Nasdaq Composite made strong advances last year, rising approximately 25% and 45%, respectively.
Big technologies were the driving force behind these returns. Actions like NVIDIA, microsoft and Amazon all are up in 2023. This serves as a reminder that while the FTSE 100 offers some diversification, it lacks exposure to the technology sector, which has proven to be particularly lucrative in recent years.
Ready to grow in 2024?
However, looking further back, while the FTSE 100 made a modest gain in 2022, many of the major stock indices ended in the red, shaken by global turmoil.
What's more, the UK index currently looks relatively cheap. The FTSE 100's price-to-earnings (P/E) ratio of just 9.5 compares favorably with the S&P 500's multiple of 23.
These low valuations add weight to the investment case for a FTSE 100 tracking fund, plus solid dividends for passive income seekers and upside potential for earnings.
Beyond the FTSE 100
That said, I'm aware of the index's lackluster performance since the financial crisis of 2008. While I see value in tracking funds, investors may want to consider doing so only as part of a broader strategy.
Buying individual stocks allows us to potentially benefit from huge gains that the index as a whole simply cannot match. For example, Footsie's star performer last year, Rolls-Roycesaw its share price rise more than 200%.
Although there are no guarantees when investing in the stock market, I will continue to build my diversified portfolio in 2024. With a mix of tracker funds and individual stocks, this could be a great year to pursue my goal of building long-term wealth. for the future. That's the silly way!
