Investing in a FTSE 100 tracker fund is a simple approach to safe portfolio diversification through broad publicity to the UK’s largest shares.

Nevertheless, some traders desire to attempt to beat the market as an alternative. Whereas the dangers of shopping for particular person shares is bigger, so are the potential rewards.

Let’s discover the FTSE 100’s return over 10 years and the way it compares to a person inventory choosing technique.

FTSE 100 efficiency

There are a number of FTSE 100 tracker funds that traders can purchase. In actuality, the variations between these index funds are negligible bar slight variations in annual price fees.

One standard, low-cost fund is the Vanguard FTSE 100 UCITS ETF (LSE:VUKE).

Again in July 2014, particular person models on this tracker fund had been buying and selling for £30.36 every. With simply over £5,000 to take a position, I might have purchased 165 models.

The market price has elevated 17% in a decade to £35.56 at present. Accordingly, my authentic funding would have appreciated to £5,867.40, supplied I held these models for 10 years.

Nevertheless, that’s not the entire story. Most of my good points would have come from dividends. Assuming I didn’t reinvest my money payouts into extra models, I might add £2,081.19 to the full, bringing my last sum to £7,948.59.

That’s an general return of just below 59%.

Investing in particular person shares

That may sound like an affordable acquire, but it surely’s necessary to notice that this determine is a nominal slightly than actual return. Accounting for inflation, the true quantity’s significantly decrease.

As well as, there would have been a possibility price to leaving £5k in a FTSE 100 tracker fund for the previous decade. I might have invested that sum in particular person shares as an alternative.

As an illustration, London Inventory Trade Group (LSE:LSEG) is one FTSE 100 inventory that’s considerably outpaced the index in recent times.

Its share price has elevated by round 430% over 10 years and the corporate’s supplied a gentle stream of dividends on high. That form of outperformance shouldn’t be sniffed at.

Though previous efficiency doesn’t assure future returns, I occur to assume that London Inventory Trade Group is well-placed to be one of many main FTSE 100 shares over the approaching years. In my opinion, it’s a inventory properly price contemplating.

A strategic partnership with Microsoft to construct bespoke generative synthetic intelligence (AI) fashions may very well be a profitable supply of progress. In any case, the corporate owns an abundance of beneficial knowledge. Leveraging AI successfully ought to permit the enterprise to reinforce its buyer providing significantly.

Granted, a scarcity of contemporary UK IPOs might weigh on the agency’s efficiency. Plus, a ahead price-to-earnings (P/E) ratio above 26 means the shares are costlier than the FTSE 100 common.

Nonetheless, I consider the danger/reward profile appears to be like engaging on stability.

The underside line

Whereas some shares like London Inventory Trade Group have been high performers, different firms have trailed the FTSE 100 index. For instance, Vodafone shares have misplaced almost 63% of their worth previously decade.

Extra cautious traders who’re involved by volatility might want to follow tracker funds and that’s completely fantastic. However, there’s a pleasant center floor too. Traders can think about shopping for each tracker funds and particular person shares, which is strictly what I select to do.